Make Your Credit Mortgage Ready!
These are some of the obstacles that could hinder you even if your credit score qualifies for getting a mortgage:
Bankruptcy
Some mortgages will work with a past bankruptcy. But you usually need to be several years past the discharge date and have rebuilt your credit. A bankruptcy, even when discharged, can stay on your credit report for up to ten years and often the challenge is that accounts included in the bankruptcy continue to report negative information which can lead to you never being approved until these accounts are corrected on your credit report.
Foreclosure Short sale
Short sales and Foreclosures both have time limits on how long you must wait before you can be approved for a new home loan. But you usually need to be several years past the sale date and have re-established your credit. Often due to inaccurate reporting these accounts are re-aged or show constant past due balances that make it impossible to get a mortgage. A foreclosure- short-sale, even when finalized, can stay on your credit report for up to seven years.
Unpaid Judgements
No mortgage lender wants to take the risk that an earlier debt could take precedence over their loan. All judgements must be satisfied,removed or vacated from your credit report. And, if paid, your judgement will stay on your report for seven years and the satisfied judgement continue to have a severe negative effect on your credit score and report..
Solve open judgements. Try to vacate them first or pay them and get proof that they’re paid,Then use credit repair to remove them though inaccuracies, etc. Yes, I know it hurts to take money out of your hard-earned down payment savings account. But that down payment won’t do you a bit of good if you can’t get a mortgage because of an old judgement from the cable company you fought with in your first apartment.
Open Collections
If you don’t pay a bill, the company you owe may sell your debt to a collection agency who will try to get you to pay. If you have too many, a loan officer may make you pay some off collections on your credit report before you get a mortgage.ONLY PAY THEM OFF IF YOU ARE TOLD TO DO SO. Keep in mind that paying a collection will not raise your credit score,but often LOWER YOUR SCORE.
Paid collections are as bad as paid collections credit score wise and removal of these items is vital to an increased credit score. Whether a collection is for $0 or $1,000,000 the impact is the same. Once a debt has gone to collections your credit is hit and can only recover over time or removal..
Too Much Monthly Debt
A good rule of thumb is that if you’re paying more than 5% of your gross monthly income for debt payments (credit cards, student loans, car payments, personal loans), you’re decreasing the amount of mortgage you’ll be approved for. If your income is high and housing prices are reasonable, high debt might not hurt you much. But if you have a modest income, debt can price you right out of a mortgage.
The higher the utilization rate is on revolving debt the lower your credit score will be, a simple fix other than paying down the balances is ask creditors for higher limits or getting new accounts.
What to do with credit flaws…
Pay your current bills on time, religiously. You’ll need the boost to your credit score if you’ve had problems in the past. And you’ll want to prove to a lender you’ve gotten past old issues and made a fresh start in rebuilding your credit.
Make sure the problems are right. If not, we must dispute them off. Experts disagree about how many people have serious errors on their credit reports, but I have witnessed a client who found a spouse he never knew he had when lots of strange information turned up on his credit report. Don’t pay the price for someone else’s mistake.