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Tips for Buying a House
with Less-Than-Perfect Credit
Home ownership is possible, even with a flawed credit history. While one lender may look at your credit and decline you for a mortgage, another may have no reservations in approving you for the money you'll need to purchase a home.
Your Americana Mortgage Group Loan Specialist can advise you on the mortgage programs available that may best match your current credit situation-from the over 100 national and local banks and lenders we regularly do business with.
If you believe your credit is less than perfect, take these steps to determine where you currently stand, and how to boost your chances of getting a home loan by improving your credit rating:
- First, get a copy of your credit report from each of the big three credit bureaus (since different banks report their information to different agencies):
- Experian 1-888-397-3742
- TransUnion 1-800-916-8800
- Equifax 1-800-685-1111
Your credit report lists:
- Every credit account you've ever had (credit card or loan)
- Every payment you've ever made and when (including past due payments)
- Accounts sent to a collection agency
- Bankruptcies, liens and judgments
Note: credit bureaus do not track checking, savings or brokerage accounts.
- Be sure all of the information is accurate. If you spot an error in reporting, call or write the credit agency and inform them immediately.
- The single most important thing you can do to achieve and maintain excellent credit is to pay your bills on time. If you can't pay in full, pay the minimum. It's never too late to improve your credit rating. If you're behind on bills, start paying them on time. Lenders will look favorably on improving payment patterns.
- Be upfront with your mortgage broker or lender-your credit score may be sub-par because of past uncontrollable events (e.g. unemployment, reduced income, death in the family, medical expenses, separation/divorce, expensive repairs) that are no longer relevant.
- If you have more than five or six credit cards, close those accounts. Simply having too many credit cards can hurt your credit score.
- One or two missed payments will not destroy your credit. However, if you have missed several payments, don't assume you can hide from unpaid bills-even if you move. Your credit report tells this story, so be prepared to pay a higher mortgage rate to compensate the lender for the increased risk.
What a Lender Looks At From a Prospective Homebuyer
- A lender considers your debt-to-income ratio, which is a comparison of your gross (pre-tax) income to housing and non-housing expenses.
- Monthly mortgage payments should be no more than 29% of gross income, while the mortgage payment, combined with non-housing expenses, should total no more than 41% of income.
- A lender also considers cash available for down payment and closing costs, credit history, etc. when determining your maximum loan amount.
©2000 Americana Mortgage Group, Inc.
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