How To Kick Credit Challenges To The Curb & Buy A Home Faster
By Paul Esajian on April 24, 2015
There’s never going to be a moment as great as this for buying a home. At least in most of our lifetimes. Unfortunately, millions of Americans are still suffering from credit wounds incurred during the recent global financial crisis. So how can you kick bad and mediocre credit to the curb to take advantage of the current market?
Step One
In order to boost your credit rating and score a mortgage loan to buy a home, you need to know what shape it is really in. Never assume how your credit stacks up. You may think you have great credit, but there could be incorrect items pulling you down. You might think that your credit is terrible, when you actually have an awesome score. You might think you have a great plan to fix your own credit, and you may be working that plan each week, but if you don’t know for sure, you are just gambling.
You need to find out exactly what is showing up on all 3 of your major credit reports. There are numerous credit score checking websites out there. Some are free. Some cost money. Unfortunately, 90% to 99% of them are bad news. They often provide useless information. If you are going to get your own scores and credit reports, you can contact the credit bureaus directly. MyFico may be one of the better alternatives, or your credit card companies may already be providing you with free credit report tracking tools.
However, one of the best ways to tackle this is by getting in touch with a mortgage broker.
Working with a Mortgage Consultant
If you apply for a personal bank loan, or a car loan, the loan office will tell you that they don’t really know what you need to qualify. They’ll also say that their scoring systems are unique to their types of loans. So if you hope to get a home mortgage; it only makes sense to speak with a mortgage loan officer or broker. Mortgage brokers tend to have more financing options. This is especially true for those that may not have excellent credit, or who are self-employed. An even more important reason to go this route is so that your credit report isn’t pulled repeatedly. Yes, this technically isn’t supposed to lower your score. Talk to any honest, experienced mortgage loan officer; and they’ll tell you they see it happen every day. This is way LendingTree was one of the worst inventions for American consumers ever. Loan applications went out to 4 different mortgage brokers who each pulled that person’s credit. They each shopped it around to another 4 plus end lenders. They pulled the individual’s credit report again. Home buyers quickly found that their excellent credit was being destroyed by this. So much so that many couldn’t buy homes at any rate or down payment percentage. If they could; they had to pay a lot more in interest in fees.
A mortgage loan officer can tell you what is showing up on your credit report. They can also tell you the best moves for getting from where you are now, to where you want to be. They might even be able to get you a home loan right now.
You probably won’t find this type of service at major banks, or via online only loan application forms. But you will get it from experienced local mortgage brokers.
Fixing Bad Credit
If you do have low credit scores or negative items showing up on your credit reports; there are solutions:
- Better managing your credit
- Taking the DIY approach to have lenders and credit bureaus remove incorrect items
- Leveraging a reputable credit repair company
- Hiring an attorney to fight to clean up your credit and challenge items
Never set off to “fix” your own credit without professional input. Otherwise you just may waste a lot of time and money, and potentially make your situation worse.
Fortunately, one of the most common credit challenges is one of the easiest to fix: high revolving credit balances – otherwise known as credit cards. Don’t close your credit cards, but get those balances down, and your score should go up. This factor alone has often caused those that have never missed payments in their lives to have lower scores than those fresh out of bankruptcy.
Collections and charge offs are another common issue. If they are large and new, they may impact credit scores and ability to get a mortgage loan. If they are smaller and older, they may not actually be hurting you at all.
More serious items that can turn off mortgage lenders include:
- Federal tax liens
- Bankruptcy
- Short sales
- Deed in lieu of foreclosure
- Foreclosure
Did you know that you can qualify for low down payment home loans just 3 years out of foreclosure? Did you know that you can get a home with less than 4% down, even if you are still in a Chapter 13 bankruptcy? Often the only thing really in between you and getting a great house deal is fear of being rejected. You won’t know unless you apply.
If you have past credit challenges, or even no credit one of the most important moves to make is re-establishing good credit. Show lenders that you are back on track, and are managing your finances well by establishing new credit lines. And pay them on time. Do not do this if you have a home loan in process. But ask your mortgage coach if it will help in advance. This can be a lot easier than most think. Secured credit cards from Capital One or used car loans that will be reported to the credit bureaus can help build up good credit scores and history fast.
Getting Financed Right Now
There are still many loans for those without great credit. Especially for those investing in real estate. Some don’t even care what your credit score is. Hard money loans, transactional funding, private mortgage money, and commercial real estate loans all often fall into this category.
Some loans can even be paired with down payment assistance programs and aid for closing costs. This means many more could buy homes right away if they just asked the right mortgage professionals.
Then there is seller financing and rent to own property deals. Again they normally don’t require credit. And can facilitate buying now while prices and rates are low.