When purchasing a home, having poor credit isn’t the end of the world. When it comes to credit, your past does not have to define your future. Whether you’re suffering from some type of financial hardship that resulted in late or missed payments, foreclosure or bankruptcy, there are financial institutions, like First World Mortgage Corporation that can assist soon-to-be homeowners with less-than-perfect credit. Depending on your financial situation, you may have to produce a larger down payment or potentially have a higher interest rate than someone who has good credit. The most important thing to keep in mind is, buying a home may be an option for you.
Foreclosure & Bankruptcy
If foreclosure or bankruptcy are on your credit report, it may take some time before you are able to qualify for a mortgage with a lower interest rate. There are mortgage programs that are specifically designed for those who have less than perfect credit, such as FHA home loans. FHA loans in particular, are especially desirable for those who have past credit problems. These loans are insured by HUD and offer a low-down payment and interest rate option for those who qualify. Individuals that file for bankruptcy are unable to apply for a home up to 2 years, where foreclosure can be up to 4 years depending on the home loan you are looking to obtain.
How to Tidy Up Your Score
With good or imperfect credit, it is important to always check your credit report before applying for a home loan. There are three major credit reporting agencies – TransUnion, Equifax and Experian. Each of the three major credit bureaus keep a credit file on every person who has ever paid a bill or taken out a line of credit. It is important to understand that lenders use these scores to calculate the risk of defaulting on a mortgage loan. Since each agency may report a slightly different score, lenders take the middle score of the three to assess your loan eligibility. When looking through your credit report, if anything seems off or incorrect, it is important to file a dispute with the reporting agency and request a correction. You are able to request a free copy of your credit report every 12 months.
In addition to correcting any inaccuracies on your credit report, it is important to know that although you are working on correcting your score, there can be things that you can do to hurt your chances of obtaining a loan. One way to avoid negatively impacting your score would be to refrain from applying for any new forms of credit before submitting a mortgage application. If you have multiple inquiries out, this will cause your FICO score to drop, and could cause issues when lenders are trying to use this information to decide whether or not to approve your loan. Typically, when you have past credit issues, most lenders will request that you have rebuilt your credit history with 1-3 major credit cards as well as having on time payments over a one-year period.
When it comes to obtaining a home loan, having a steady reliable income will show the lender that you are creditworthy. It is important to know that lenders are looking for sufficient employment for two years prior to applying for your loan application. During the application process, most lenders request copies of the most recent month of pay stubs as well as the last two years’ worth of tax returns. Having a certain percentage of the down payment will also work in your favor.