So you finally found a home of your dreams but the big ‘F’ is the problem. You have no idea where you will get the money. Your credit history is bad and your income debt ratio is worse. You have been denied loans for many reasons including overdue taxes, late payments or no substantiated credit at all.
If this sound like you, no worries. There is hope for you. Forget about the mortgage rules for now and start working towards getting the best rates to suit your need. If you want your credit worthiness fixed, start here:
1. Clean up your credit report
You will first need to ask for all your credit reports so that you can know what you are dealing with. You never know which one the bank will look at. You can then check to see if it is accurate and dispute any discrepancies. Errors are made daily and some people pay for the mistakes of the credit bureaus unknowingly. Don’t be that person.
After that, you can then check your charge offs, collections and late payments. Update all your payments by paying off delinquent accounts and then deal with the negative implication. As corny as this sounds, you will need to write a letter of goodwill to the original creditors to see if they can forgive or remove the bad item in your credit history. All you need is a good explanation.
2. Reduce Your Debts
Start paying your debts including your credit card to as low as 12 percent of your income. You will need to come up with a serious plan to deal with your debts in order to improve your debt-income ratio. You will also need to avoid incurring any new debts or applying for any new credit cards. This will have implications on your credit history and might create suspicions.
If you are really pressed, it is wise to wait until you have the house before you start going deep into debt. Make sure all your bills and obligations are paid on time.
3. Seek Professional help
Yes, there is affixer for everything. Sometimes the stress is too much and you might get lost in the maze. You could consider hiring a credit repair company to help you in the step by step process. You have to be ready to work with them by paying your debts if anything is to be done. You might need this so you can focus your energy on surveying the real estate market some more.
Is there hope?
Yes, even with a bad credit history, Federal Housing Administration can still give you a mortgage loan with a down payment of as low as 3.5 percent on a credit score of 540.They require a 1.75 percent of the loan value as insurance premium and additional monthly fees. It has its pros and cons but it could suffice as the last option.
Another option is for you to save up a larger down payment. It will make the lenders overlook your poor credit history and finance your mortgage. You could also explain your poor credit score to your lender and proof to them that you are financially stable in other ways. There is no harm in trying, right?
Ever thought of a private mortgage? If you have a friend or a small institution that can lend you without the credit position restrictions, your dream of owning a house can still be realized.
Having a stellar credit report is very important to owning a home, but if yours is wanting, you can always start where you are. Clean it up at least six months before you apply for the mortgage and you might be lucky. Don’t be discouraged by the limits imposed on you by the past, if you are serious, you could try other avenues to finance your dream.