So, you are thinking about buying a home and are concerned that your credit may hold you back from your dream of home ownership. Well you are not alone; the number one reason given by first time home buyers for not trying to buy a home is their concerns about their credit. Here are a few pointers to help overcome this common issue:
1) Credit Karma and MY fico scores are not your real credit scores!!!
Almost every day I speak with potential home buyers and ask about their credit and many have an online service that provides credit score information. These scores are not accurate and I’m afraid to say that in almost every case your real credit scores will be lower. Most mortgage professional use the middle score from the 3 credit bureaus (Equifax, Transunion and Experian) and you will not know what that score is until a complete tri merged credit report is ordered. The old saying is you get what you pay for and the free online credit scores definitely fall into that category.
2) Prior Foreclosures, Short Sales and Bankruptcies do not mean you cannot get a mortgage!
Current FHA Guidelines are as follows:
• Bankruptcy Chapter 7: 2 years from the date of discharge before FHA approval
• Foreclosures, Short Sales, Deed in Lieu: 3 years from the date the home was transferred out of your name.
We help many home buyers who have experienced one or more of these credit issues, the key is to start working on rebuilding your credit as soon as possible as most lenders will have credit score requirements and will want to see at least 3 accounts with good payment history over the last 1-2 years.
There are mortgage programs that will allow you to finance a home with only 1 day out from a Foreclosure of Bankruptcy but expect to put down 20-25% of the purchase price and pay a much higher rate then offered by a FHA loan.
3) Contact your Mortgage Professional at least 3 – 6 months prior to starting the home buying process.
Many home buyers make the mistake of waiting until they are ready to put an offer on a home before they seek “Pre-Approval”, This is a mistake as many credit reports will have items that are incorrect, not updated and can be easily fixed. The time to find out about this is before you are under contract as once you agree to buy a home the clock is ticking. Even if the issues are minor they can still effect your credit and with the proper guidance you can get you credit score to the best possible level which can save you lots of money with lower interest rates and lower mortgage insurance premiums.