Purchasing a new home can be a very stressful experience. If you have a poor credit history, you may experience even more stress trying to figure out if you will be approved for that new loan!
If you do have a poor credit history, there are some things you can do to get an affordable home loan and move into that house of your dreams.
Steps
Pay your bills on time. Start paying your bills on time now! If you expect you will be purchasing a new home soon, get your current credit situation in order before you apply.
Pay Down Debt. Pay off as many debts as you can - especially credit cards. If you have an excessive number of credit cards with high limits, close some of them. Most lenders like to see up to 2 open credit cards with reasonable limits. If you have 4 or more credit cards, pay off and close as many of them as you can. Most lenders look at your minimum payments, so if you have some credit cards you can pay off, do it now.
Get a Copy of Your Credit Report. Pull your credit report and correct any errors. It can take up to 30 days for a credit reporting agency to correct their information - get it corrected as soon as possible. We recommend you use CreditReporting.com
to pull your credit report.
Prepare an Explanation. If you do have problem spots in your credit history, prepare an explanation. This explanation should be a reasonable one - large medical bills, college debt, lost your job, etc. When you meet with a lending officer, they do have some wiggle room if you are working on fixing your credit and you have an explanation for your past problem areas on your credit report.
Tips and Tactics
Increase Your Down Payment. Increasing your down payment may qualify you for a conventional loan you are otherwise not qualified for.
Compare Lending Offers. Take some time to compare different lending offers from mortgage companies and banks.
Try a Credit Union. If you're a member of a credit union, you might get better treatment from them than from a traditional bank or mortgage broker.
Don't Get in Over Your Head. Do not take some wacky adjustable rate mortgage where you end up with a payment you can't afford in a couple of years. Buy a smaller house rather than get stuck in a loan you can't afford.
