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What Is a Home Mortgage and Why Do They Exist?
Jennifer Hernandez • February 6, 2023
Mortgage loans allow people to buy their own homes without having all of the cash upfront. Learn about the history of mortgages and why they exist here.
Of all US homeowners , about 63% of them carry some kind of mortgage, whether it be with a traditional lender or a private one. If you're a first time homebuyers or even a repeat buyer, you might be looking for a refresher on what mortgage loans are, and reveal how the ability to obtain a mortgage depends on your income, total debt, and your credit score.
And finally, the documents needed to become approved by most lenders. If you're looking to understand more about home loans and why mortgages exist, then be sure to keep reading.
What Is a Residential Home Mortgage?
A residential home mortgage is an agreement between you and a lender. The lender could be a financial institution, a private company, or an individual. The lender will have you sign a promissory note, that includes repayment terms, as well as a Deed of Trust. The Deed of Trust is the legally recorded document of record that states that if you do not pay the monies owed, the lender can foreclose, or take back the property used as collateral.
As a borrower, you're agreeing to repay the lender over a designated amount of time, with interest according to an agreed upon interest rate. Mortgage loan terms can be fixed or variable. The most common are fixed for 30, 20 or 15 years. This means that the payments are the same monthly according to an amortization schedule. If the mortgage terms are variable, otherwise known as an adjustable rate mortgage, the interest rate, and therefore payment, can vary at certain points of the mortgage.
Another characteristic of mortgage loans is whether they have a prepayment penalty. Although most traditional mortgages do not have a penalty for prepayment, it is wise to ask the questions anyway. If you are seeking a private mortgage through a private company or individual, this could come into play.
Why do Mortgages Exist?
A fun historical fact for you is that the concept of mortgage debt dates all the way back to the Persians in the 5th Century BC! The word mortgage can be separated into 2 Latin words 'mort' and 'gage'. Meaning literally death and pledge. Mortgage in these ancient times, and still today, was a way to formally document the legal and binding process of pledging the home and land as collateral for the loan being given.
The more modern day mortgage as we know it, began in the 20th century in the times around the Great Depression. In 1934 the federal government created the Federal Housing Administration, better known as FHA. This agency was created to help rebound the home purchase market in the wake of the hard financial times, and help spur home ownership.
A few years later in 1938, Fannie Mae was also created and there the 30 year mortgage was born that we know and love today. Before this time, it was common that 50% down was required on a home mortgage from a bank, with very different terms than we see in these modern times.
What is included in a Mortgage Payment
Your mortgage payment is primarily and firstly composed of a combination of principal and interest to repay the loan over a certain number of years. The most common repayment terms for traditional institutional mortgages is 30, 20 or 15 years.
In addition to the principal and interest, you could be obligated to include property taxes and home insurance via an escrow account set up with the lender. This decision is made by the lender, and usually depends on how much of a down payment is made. Usually, when 20% or more is paid down, the lender will allow the payment of property tax and insurance to be optional. On the other hand, if less than 20% is put down, an escrow account will be created for the lender to include taxes and insurance in your monthly payment each month.
As mentioned in the prior section of this article, if you are on a variable, aka adjustable rate mortgage, your payments could change with time. Additionally, as years go by, property tax and home insurance costs increase in general, and payments could go up yearly for those reasons as well. Be sure to discuss these possibilities with your local mortgage lender.
Can I qualify for a Mortgage?
There are a few essentials to know about qualifying for a mortgage. The guidance I'll give in this section would be assuming mainstream or traditional lenders, not private lenders. For most home mortgage loan programs, credit is the number one factor when applying for a mortgage.
Credit scores are generated automatically using a credit scoring system. Not all credit scores are the same. In fact there are over 25 credit simulators currently, and maybe more. All mortgage lenders do usually analyze the same scoring model. So its important to apply with a lender as soon as possible. There are programs with scores as little as 580 up to 850. The higher your credit score, the more options you will have for programs, especially with FHA or Conventional Loans, which are the most common in the traditional lending marketplace.
The next important factor regarding qualifying for a mortgage is Income and Employment History. If you have a 2 year history of employment, even if with multiple employers, that is the first requirement of income. The 2 year requirement is usually waived if you have been at university or other trade school to advance in a career. Other types of income may not need the 2 year history, such as social security, pensions, retirement income, disability income or child support. These are the most common, but not the only sources of income used for qualification.
The third component of qualifying for a mortgage is down payment. There are mortgage loans with as little as 0 down payment. This would be VA loans or USDA loans, that are both offered through the federal government. These loans have specific qualifications that not every homeowner meets. So the most mainstream down payments are for FHA loans with a 3.5% minimum down payment, or a Conforming Conventional Loan with a 5% down payment minimum. If you are a first time buyer you likely qualify for a 3% down payment.
There are also down payment assistance programs available in most cities and states to help homeowners in lower income brackets.
Here is a link to our other article about buying a home with low income if this applies to you.
Documents Needed for Mortgage Pre-Approval
The very first step to attaining a mortgage is to secure your pre-approval letter from a mortgage lender. To get a pre-approval letter, you'll need to be ready to provide the following documents:
- Tax returns, W-2s, and 1099s, along with any other income and employment documents
- Brokerage account, retirement, and bank asset statements
- List of real estate debt payments and any other monthly debt payments
- Any records of foreclosure, divorce, bankruptcy, and rent payments
Be sure to gather these documents before applying for your mortgage pre-approval letter.
When applying for a mortgage for the first time, it can be overwhelming with all the anticipation and uncertainty about the paperwork needed from the lender.
We've compiled an easy-to-use checklist on all documents required to get pre-approved for a mortgage in Texas. Simply click the link below and download!
Get A Mortgage Loan Pre Approval Today!
Once you sense that you have credit, income and savings for your home purchase, its a great idea to start talking to a lender. It is NOT mandatory that all these things are in hand at the time of pre approval. Although it helps. But we suggest buyers start talking to a lender sooner than later, as little as 6-12 months from starting your home search, so that you can be prepared and have homework assigned if needed to get you into your dream home!
If you're ready for a mortgage pre approval, then contact Loan With Jen. We have been in the mortgage business since 1995 and have decades of experience with residential mortgages. We would be honored to consult with you further.
Buying a home is one of the biggest financial and emotional decisions you'll ever make. But how do you really know if you're ready? In this article, we’re breaking down five clear signs that you might be ready to buy a house—and one red flag that means you may want to wait. Whether you’re a first-time buyer or just testing the waters, this guide will help you move forward with clarity and confidence. Sign #1: You’re Financially Stable The first green light? Consistent income and job stability. If you’ve had a steady paycheck for at least two years (especially in the same industry), that’s a strong start. But it goes deeper than income: You should also have: An emergency fund covering at least 3–6 months of expenses Savings for a down payment (typically 3%–20% of the home price) Money for closing costs and moving expenses Pro Tip: Many buyers underestimate how much they’ll need after the down payment. Check out this mortgage planning article to avoid that mistake. Texas-Specific Tip: Texas has no state income tax—but property taxes are higher than the national average. Be sure to budget accordingly. You can estimate local taxes via the Texas Comptroller’s Property Tax site. https://comptroller.texas.gov/taxes/property-tax/rates/index.php Sign #2: You’ve Got Manageable Debt & Decent Credit Your debt-to-income ratio (DTI) and credit score directly impact your ability to qualify for a mortgage—and the rate you’ll get. A credit score above 620 is usually the minimum for most loan types The higher your score, the lower your interest rate—potentially saving you thousands over time If you're carrying high-interest debt, it might be wise to pause and reduce it before buying Your debt-to-income ratio is under 55%. Want to learn more? Watch How Your Credit Score Affects Your Mortgage . Sign #3: You’re Ready to Stay Put Buying a home makes more sense if you plan to stay in one place for at least 3–5 years. Why? Because selling a home comes with closing costs, commissions, and possibly capital gains taxes. If you move too soon, you may not have built enough equity to make it financially worthwhile. Ask yourself: Are you planning to stay in the same city or job? Do you feel ready to settle down a bit? Sign #4: You’re Ready for the Responsibilities of Ownership Homeownership isn’t just about finances—it’s a lifestyle shift. Are you ready to: Maintain a yard Handle repairs Budget for appliances or home upgrades These are everyday realities renters don’t usually deal with. If you’re ready to take that on, it’s a strong sign you’re ready to buy. Need a reality check? Watch The Real Cost of Homeownership for a behind-the-scenes look. Sign #5: You’ve Budgeted for the Full Cost of Homeownership It’s easy to focus just on your monthly mortgage payment—but that’s only part of the picture. You also need to budget for: Property taxes Homeowners insurance Maintenance and repairs HOA fees (if applicable) If you’ve run the numbers and still feel comfortable, you’re probably in good shape. Red Flag: You’re Buying Out of FOMO If your motivation to buy a house is: Everyone else is doing it You’re afraid of being priced out You feel pressured by social media or family Take a step back. Fear of Missing Out (FOMO) is not a solid reason to buy a home. Your decision should be based on your goals, your finances, and your lifestyle—not the market hype. Not Sure If You’re Ready? We’ve Got You Covered Download our free Homebuyer Readiness Checklist to see where you stand Check out our Blueprint to Homeownership course for a step-by-step guide through the buying process Bottom Line Buying a house isn’t something to rush—but with the right preparation, it can be one of the most rewarding decisions you ever make. If you feel financially stable, ready for long-term commitment, and confident in your lifestyle plans—you may be ready to take the next step. Have questions? Reach out here Book a 15 Mins Call and we’ll walk you through it. Want more clear, honest mortgage advice? Subscribe to Loan With Jen on YouTube
Think you can’t afford to buy a home? You might be surprised. The income you actually need may be lower than you think. In fact, most people are asking the wrong question entirely. In this post, we’ll break down: How lenders really decide what you qualify for A simple formula to estimate your price range Why your debt matters more than your income Plus—how first-time buyers get approved with less than you’d expect It’s Not Just About Income—It’s About Debt-to-Income Ratio (DTI) Most people think income alone determines your buying power. But lenders focus more on your Debt-to-Income Ratio (DTI) . Here’s how DTI works: Your total monthly debt ÷ your gross monthly income = your DTI Most lenders want this ratio to be 45% or lower , though some loan programs will allow more. This calculation includes: Your new mortgage payment Property taxes Insurance HOA fees (if applicable) Any car loans, student loans, or credit card minimum payments Example: Let’s say you make $75,000 per year—that’s $6,250/month gross income. 45% of that = $2,812 Now subtract your monthly debts: Car loan = $500 Credit card payments = $300 Total = $800 That leaves you with about $2,000/month for a mortgage payment. What Kind of House Does $2,000/Month Get You? With interest rates around 6.5% , that could get you a home priced at $260,000–$280,000 , depending on your: Down payment Property taxes Location HOA dues Of course, this is just an estimate. You can plug your numbers into a mortgage calculator to get a more accurate idea based on your location and situation. How Loan Types Impact Income Requirements Your loan program plays a big role in how much home you can afford. Here’s a quick breakdown: FHA Loans : Allow DTIs up to 50%, and only require 3.5% down VA Loans : For veterans—no down payment required and very flexible income requirements Conventional Loans : Stricter guidelines; usually require 43–45% DTI and 3–5% down USDA Loans : No down payment, but must be in eligible rural areas and meet income caps And remember— a larger down payment means a smaller monthly mortgage , which helps you qualify for more. Credit Scores and Reserves Matter Too Even if you qualify on paper, your credit score and cash reserves play a key role: Higher credit score = lower interest rate = lower monthly payment Reserves are how much money you have in the bank after closing. Many lenders require at least 1–2 months of mortgage payments in reserves. Even if your income is borderline, having reserves can tip the scales in your favor. Real Buyer Stories: It’s More Possible Than You Think Story 1 : A couple earning $90K/year thought they needed to wait because of student loans. But with FHA, 3.5% down, and minimal other debt, they got approved for $325K—and closed on a home last month. Story 2 : A single teacher earning $52K/year bought a $210K condo using just 3% down and a first-time buyer grant. She didn’t think she qualified—until she did. Don’t Forget Side Income or Co-Buying You might qualify for more than you think if: You co-buy with a spouse, parent, or sibling You have side income (Uber, freelance, small business) that’s been on your taxes for at least 2 years That extra income can help you get approved. The Formula: Estimate What You Can Afford Here’s a quick formula to ballpark your buying power: Take your gross monthly income Multiply by 0.45 (max DTI) Subtract your monthly debts The remainder is your max mortgage payment (including taxes & insurance) Use a mortgage calculator to plug in that number and see what home price you might qualify for. Online mortgage calculators don’t take tax or insurance into consideration most times, but this will give you a ballpark figure. Before you get your heart set on a house though, reach out to a lender to find out your true buying power. It costs you nothing to get this information! Bottom Line: You Probably Don’t Need Six Figures to Buy a Home Most buyers are surprised by what they can afford. The key is understanding how lenders look at your full financial picture—not just your income. You don’t have to guess. And you don’t have to go it alone. Next Steps Take our FREE Blueprint to Homeownership course for a step-by-step guide Reach out to our team for a free strategy call —we’ll help you crunch the numbers and create a plan If you found this helpful: Subscribe to the Loan With Jen YouTube channel for weekly tips
You’re not starting over—you’re starting fresh. And yes, you can buy a home after a divorce. If you’re navigating a divorce or separation, I want to start with this: Big hug. Big kiss. This season of your life might feel uncertain or overwhelming, but you’re not broken. You’re rebuilding—and I’m here to help. Let’s walk through the 5 most common mistakes people make when trying to buy a house after divorce —and how to avoid them. 1. Your Credit Tells the Real Story—Not Just the Divorce Decree Here’s what most people miss: Even if a divorce decree says your ex is responsible for a shared mortgage or credit card, your name on the account means it’s your responsibility in the lender’s eyes. That means: Late payments by your ex will still hit your credit. A mortgage that your ex was supposed to refinance but didn’t? Still counts against your debt load. What to do: Pull your full credit report from all 3 bureaus : Experian, Equifax, and TransUnion Review all joint accounts : Are they closed? Paid off? Still open? Check if your ex has refinanced you off the mortgage —don’t assume, verify! Collect documentation if the mortgage responsibility was transferred Pro Tip: As a lender, I can do a soft credit pull for you—no ding to your score—to identify red flags before you apply! 2. Income After Divorce—What Counts (and What Doesn’t) Post-divorce income can be complex. Whether you're earning on your own or receiving support payments, lenders need proof of stability and consistency . What lenders typically require: W-2 income or 2 years of self-employment returns At least 3–6 months of child support or alimony payments (with documentation) A copy of your final divorce decree or court-ordered support agreement Watch out for: Informal payments (Venmo, cash) with no paper trail Newly ordered support that hasn’t been received yet Significant drops in income—these must be accounted for Pro Tip: If your income has decreased after divorce, we can explore co-borrowers, grants, or flexible loan programs to help you qualify. 3. The Old Mortgage Can Haunt You (Even If You Don’t Live There) Even if your ex is living in the home and paying the mortgage, if your name is still on the loan, it counts against your debt-to-income ratio. This can affect how much you qualify for—even if you’re renting now or planning to buy something smaller. How to handle it: Ask your ex to refinance the home and provide a release of liability from the lender. Ask the lender - before you are off the loan and still authorization to speak to the lender - to provide you with instructions on how to receive a release of liability. If refinancing isn’t happening, collect 12 months of canceled checks or bank statements showing your ex is paying from their own account If those options aren’t possible, you may need to wait until the home is sold or work with a lender who understands how to navigate this scenario 4. Don’t Skip the Emotional Prep—Buying a Home Is a Big Deal Divorce doesn’t just impact your finances—it affects your emotions, too. Even if you're financially ready to buy, make sure you’re mentally and emotionally ready to take on homeownership again. This is especially true if you're moving from a home that holds memories or are co-parenting with children. Ask yourself: Am I rushing to buy just to feel “settled”? Is this home choice based on my new lifestyle , not my old one? Do I have the support system and clarity to take on this responsibility? Mindset Tip: Your next home should support your fresh start , not keep you tied to the past. You’re building your life now—on your terms. 5. Timing Is Everything—Don’t Rush the Process After a divorce, it’s tempting to try and “fix” everything fast. But buying a home is a major financial move, and sometimes waiting just a few months can make a big difference. Reasons you may want to pause briefly: Waiting for credit to improve Gathering more documentation or saving for a down payment Giving support payments time to become “seasoned” (most lenders want 3–6 months of consistent payments) That said, you don’t have to put your life on hold forever. The key is working with someone who knows the post-divorce lending landscape and can help you make informed choices. You’re Not Alone—And You Can Do This Whether you're newly separated or a year into your new chapter, you deserve a place to call your own. And you don’t have to navigate this alone. Ready to get started? Here are your next steps Get a free credit and income readiness review —just message me Take my Blueprint to Homeownership course if you want a full step-by-step roadmap. You’ve got options. You’ve got support. And most importantly—you’ve got this. I’m here to help you rebuild with confidence. Let’s find your fresh start.
Did you know that buying a home doesn’t just build equity… it actually lowers your tax bill every single year ? Whether you're a first-time homebuyer or looking to grow your investment portfolio, real estate offers powerful tax advantages that most people don’t even realize exist. I even have a legal strategy that helps real estate investors defer taxes on hundreds of thousands of dollars in profit. Why Does Real Estate Have So Many Tax Perks? Simple: The government wants you to buy real estate. Homeownership and property investment fuel the economy, so the IRS offers major tax incentives just for owning property. But many people miss out on these benefits—either because they are unaware or didn’t plan ahead with a qualified professional. Tax Benefits for Homeowners (Primary Residence) If you’re buying a home to live in , here are the top 3 tax perks you need to know: 1. Mortgage Interest Deduction You can deduct the interest portion of your mortgage —which is a huge portion of your payment in the early years. For most people, the deduction applies to loan amounts up to $750,000 (if married filing jointly). Fo example, if your loan is $400,000 at 6% interest, you’re paying ~$24,000 in interest your first year—most of which may be deductible. 2. Property Tax Deduction You can deduct state and local property taxes , up to $10,000 per year (or $5,000 if married filing separately). While not as generous as it once was, it’s still a meaningful deduction, especially in higher-tax areas like Texas . For Texas-specific property tax resources, check out the Texas Comptroller’s Property Tax Help page. https://comptroller.texas.gov/taxes/property-tax/ 3. Capital Gains Exclusion When you sell your primary home, you may be able to exclude up to $250,000 of the profit (or $500,000 if you are married) from capital gains tax. The catch: You must have lived in the home for at least 2 of the last 5 years. That means if your home appreciated $400,000 and you're married—you could pay zero tax on that gain! Watch: How to Avoid Capital Gains Tax on Your Home Sale Tax Benefits for Real Estate Investors This is where the real tax magic happens. As an investor, you’re not just earning income—you’re tapping into one of the most tax-advantaged asset classes in the country. Here are five big tax breaks available to real estate investors: 1. Depreciation Even if your rental property is appreciating in value, the IRS lets you “pretend” it's losing value for tax purposes—this is called depreciation . A $275,000 rental property (excluding land) can generate $10,000/year in depreciation —offsetting your rental income on paper and lowering your taxable income.
Down payment assistance programs (DPAs) sound like a dream come true—free money to help you buy a home! But before you get too excited, there are hidden costs and crucial details you need to be aware of. Let’s uncover the real impact of DPAs so you can decide if they’re the right fit for you. What Are Down Payment Assistance Programs? Down Payment Assistance Programs, or DPAs, are designed to help homebuyers, particularly those with limited income, afford a home. While many of these programs are for first-time buyers, some cater to repeat buyers as well. Here are the key factors to consider: Income Limits: Most DPAs have income restrictions based on your area’s average median income. Credit Score Requirements: Your credit score will need to meet a minimum threshold. Geographic Restrictions: While some programs are available statewide, others are limited to specific locations. Types of Down Payment Assistance Grants – Free money that doesn’t need to be repaid. These are typically reserved for first-time buyers. Forgivable Loans – A second mortgage that is forgiven after you live in the home for a set period (commonly 3, 10, or even 20 years, depending on the program). Deferred Payment Loans – A second lien with no required payments until you sell or refinance your home. This must be repaid when you pay off your first mortgage. Sounds great, right? Well, let’s dive into the hidden costs and fine print you need to be aware of. The Hidden Costs of Down Payment Assistance 1. Higher Interest Rates Most DPAs come with a higher interest rate compared to conventional financing. This means you could be paying thousands more in interest over the life of your loan. While some programs offer competitive rates, qualifying can be more difficult. 2. Increased Closing Costs In addition to a higher interest rate, many DPAs come with additional fees, such as: State Administration Fees: These can range from $500 to $600. Origination Fees: Some lenders charge a percentage of the loan to access the program. Before committing to a DPA, compare a loan estimate with and without assistance to see the true cost side by side. 3. Restrictions on Occupancy Many DPAs require you to live in the home as your primary residence for a set period. If you decide to rent it out, you could be required to pay back the assistance in full. 4. Income and Location Restrictions Most programs have income caps based on your area’s median income. If your income exceeds the limit, you won’t qualify. Some programs also require you to buy in specific areas. 5. Recapture Tax (Resale Requirements) Some programs include a recapture tax , meaning if you sell your home for a profit, the program can claim a portion of that profit as repayment for the assistance. This can be a significant financial setback if you weren’t expecting it.
Dreaming of owning a home but haven’t saved up for a down payment? You’re not alone—and good news: there are options for you! In this post, we’ll break down four powerful ways to buy a home with little or no money down —plus, a few key mistakes to avoid that could cost you thousands. These are real strategies we use with buyers every single month. 1. USDA Loans – For Rural Buyers The USDA loan program, which is backed by the United States Department of Agriculture , offers 0% down financing for eligible properties and borrowers. The catch? There are income and geographic restrictions . Good for : Rural or suburban buyers outside city limits Down payment : $0 Bonus : Lower mortgage insurance than FHA Check if a property qualifies for USDA Watch this video : Understanding USDA Loans with Jen 2. VA Loans – For Veterans and Their Families If you’re a veteran or the surviving spouse of a veteran, the VA loan offers a $0 down path to homeownership—with no mortgage insurance and loans available up to $2 million ! Good for : Active military, veterans, or qualified spouses Down payment : $0 Bonus : Flexible credit guidelines and competitive rates Watch this video : How VA Loans Work 3. Down Payment Assistance (DPA) If USDA or VA don’t fit your situation, down payment assistance programs (DPAs) might be your best option. These programs are provided at the state, county, or city level , and they can cover some or all of your down payment and/or closing costs. Good for : First-time and repeat buyers with limited savings Down payment : Partial or full assistance Bonus : Can sometimes be combined with seller credits Texas buyers, check out: 🔗 My First Texas Home Program 🔗 Texa s State Affordable Housing Corporation (TSAHC) Video breakdown : Down Payment Assistance Explained 4. Gift Funds – From Family or Close Friends Did you know you can receive money as a gift to help with your down payment? That’s right. FHA, VA, USDA, and Conventional loans all allow gift funds on primary residence purchases. But before you make a huge cash deposit, make sure you talk with your lender about how to document the gift. Good for : Buyers with supportive family Down payment : Fully or partially covered by gifts Note : Must be properly documented with a gift letter and proof of transfer Learn more : How to Use Gift Funds
Your credit score is the key to unlocking your financial future. Understanding how it’s calculated can help you make better financial decisions and avoid costly mistakes. Many people find their credit score to be a mystery—sometimes it drops even when they make payments on time! If you've ever been frustrated by fluctuations in your score, this guide will break down the five key components of your credit score so you can take control and boost it effectively. Why Your Credit Score Matters Your credit score is a three-digit number that reflects your financial responsibility to creditors. It affects everything from securing a mortgage or auto loan to getting approved for credit cards and even determining your interest rates. The better your score, the more favorable your loan terms— lower interest rates, smaller deposits, and better financial opportunities . In fact, 90% of lenders use FICO scores as their primary credit evaluation tool ( source ). But how exactly is your FICO score calculated? Let’s break it down. The 5 Components of Your Credit Score 1. Payment History (35%) – Never Pay Late! Your payment history is the most important factor in your credit score. It includes: On-time vs. late payments (payments that are 30+ days late are reported to credit bureaus) Collections and charge-offs Bankruptcies or foreclosures 🔹 Pro Tip : Always pay at least the minimum payment by the due date. Setting up auto-pay can help prevent accidental late payments. If you’re struggling, reach out to creditors to discuss payment plans before you fall behind. 📌 More on improving your payment history: How Late Payments Affect Your Credit Score 2. Credit Utilization (35%) – Keep Your Balances Low Your credit utilization ratio refers to the percentage of available credit you’re using. High utilization can hurt your score, even if you pay your balance in full each month! 🔹 Best Practice : Keep your credit card balances between 10-30% of your credit limit. For example, if you have a $5,000 limit, don’t carry a balance higher than $1,500 at any time. 🔹 Secret Tip : Your balance is reported to the credit bureaus on your statement closing date , NOT when you make a payment. If you pay your credit card bill before the statement closing date, you can lower the reported balance and improve your utilization ratio. 📌 More on credit utilization: Mastering Your Credit Score 3. Length of Credit History (15%) – The Longer, the Better Credit bureaus consider how long your accounts have been open. Older accounts demonstrate stability and reliability . 🔹 Best Practice : Avoid closing old credit accounts, even if you don’t use them often. Keeping them open helps maintain your average account age . 📌 More on the importance of credit history: How are Credit Scores Made? 4. New Credit & Inquiries (10%) – Be Careful with Hard Pulls Every time you apply for credit, a hard inquiry is recorded on your report, which can slightly lower your score. Applying for multiple credit accounts in a short time signals to lenders that you may be in financial trouble. 🔹 Best Practice : Keep new credit applications to a minimum and only apply when necessary. 🔹 Good to Know : Soft inquiries (like checking your credit score on your own) do not affect your credit score! 📌 More on credit inquiries: Does a Hard Enquiry Damage My Credit Score? 5. Credit Mix (10%) – Variety Matters Having a healthy mix of credit types boosts your score. Lenders like to see that you can manage different types of credit responsibly . A strong credit mix includes: Installment loans (e.g., mortgages, auto loans, student loans) Revolving credit (e.g., credit cards, home equity lines of credit) 🔹 Best Practice : If you only have one type of credit, consider adding another responsibly (e.g., opening a credit card if you only have loans). 📌 More on credit mix: How Your Credit Mix Affects Your Score
Does a Hard Inquiry on Your Credit Really Hurt Your Score? If you're planning to buy a home in Texas, you may be wondering: Does a hard inquiry on your credit really damage your score, and how will it affect your chances of mortgage approval? Let's break down what a hard inquiry is, how it impacts your credit, and strategies to minimize its effect so you can confidently move forward with your home purchase. What is a Hard Inquiry? A hard inquiry occurs when a lender checks your credit report to assess your creditworthiness for a loan, credit card, auto loan, or mortgage. Unlike soft inquiries (which happen when you check your own credit or when a lender pre-qualifies you without a formal application), hard inquiries are recorded on your credit report and may impact your credit score. Inquiries remain on your credit report for up to two years , but the good news is that FICO scoring models (used by 90% of lenders) only consider them for one year. This means that while the inquiry stays visible on your report, its impact on your score diminishes after 12 months. How Hard Inquiries Affect Your Mortgage Approval A hard inquiry alone is unlikely to prevent you from getting pre-approved for a mortgage. However, here’s what you need to know: FICO Treats Multiple Mortgage Inquiries as One: If multiple mortgage lenders pull your credit within a 30-day window , it only counts as one inquiry for scoring purposes. This allows you to shop for the best mortgage rates without penalty. Other Inquiries Can Hurt Your Score: While mortgage inquiries are grouped together, applying for credit cards, auto loans, or personal loans during the same time frame can lower your score. Impact Depends on Your Existing Credit Score: If your credit is already strong (e.g., 700+ score ), a hard inquiry may have a minimal effect—think of it as a small “peck” on a steel building. However, if your credit is already struggling, an additional inquiry could have a more noticeable impact. 👉 For a deeper dive into credit scores and mortgages, check out Loan with Jen’s guide on mortgage pre-approvals .