How Can I Get a Mortgage After Credit Problems?

If you’re rebuilding your credit, you might feel that a mortgage loan is out of reach. Today, many lenders require a minimum credit score between 680 and 700. And if your score isn’t within this range, you might push aside any plans to purchase a home — at least for now

It’s true that mortgage lenders have tightened their loan requirements. However, there are provisions in place to help those with a “not-so-perfect credit past” qualify for mortgages.

If you’re ready to buy a house, here are four ways to get approved for a loan.

Apply for an FHA Mortgage Loan

Conventional mortgage loans are a popular choice, but they aren’t the only option available to you.

These mortgage loans require a minimum credit score of about 680 (sometimes higher, depending on the bank), which won’t work if you’ve had credit problems and you’re in the process of rebuilding your score.

An FHA mortgage loan. on the other hand, “doesn’t mandate a minimum credit score,” according to Vicki Bott, HUD deputy assistant secretary for single-family housing. “Instead, each borrower’s creditworthiness is considered in context.”

Some lenders that offer FHA mortgages do require a minimum credit score of 620. However, this minimum is less than the minimum required for conventional loans.

Re-Establish Your Credit Score

A foreclosure, bankruptcy or repossession can crush your credit score, but these mistakes aren’t the end of the world.

This type of negative activity can remain on your credit report for up to seven years. However, the more positive information you add to your credit report after a serious mistake, the more points you’ll add to your credit score. Therefore, it’s important that you make wiser credit choices going forward.

For example, you’ll want to always pay your bills on time and maintain low debt levels. If your most recent credit activity is superb, lenders might give less attention to past mistakes and focus on your

present credit condition.

Allow Sufficient Time to Pass

After a major credit setback, such as a short sale, a foreclosure or bankruptcy, the majority of lenders will not approve a mortgage loan application until ample time has elapsed.

This is actually for your benefit, as waiting periods give you time to rebuild credit and regain control over your finances. These periods vary depending on the type of loan you’re qualifying for and the severity of the mistake.

For example, some conventional loans require a two-year to seven-year wait period after a short sale; a three-year wait period after foreclosure; and a two-year wait period after a bankruptcy. For an FHA mortgage loan. there is a two-year and three-year wait period following a bankruptcy and foreclosure, respectively.

Save Up a Higher Down Payment

Although there are loans with low down payment requirements, your lender will probably charge a higher mortgage rate if you have a low credit score. And unfortunately, the higher your mortgage rate, the higher your house payments.

There is good news, however. Putting down a bigger down payment can help you get a better mortgage rate, despite a low credit score. There are no hard and fast rules regarding how much extra to put down, but you might aim for a down payment between 10% and 20%.

The down payment represents your investment in the house. And from a lender’s standpoint, you’re less likely to default when you have more to lose.

When it’s all said and done, getting a house with less than perfect credit is probably easier than you think. If you’re recovering from credit mistakes, and you have the income and down payment for a house, why not purchase? Speak with a mortgage lender and discuss the options available to you.

Total Mortgage has some of the lowest mortgage rates in the country. Apply  today and find out how much you could be saving on time and money.


Category: Credit

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