Question:
I have credit scores less than 580 and I have never filed bankruptcy, can I qualify to buy a home?
Answer:
The answer is likely to be no. Sorry for the not so great news, but buying a home with marginal to poor credit has gotten very difficult in 2008. This is primarily because of two things: subprime mortgages have all but gone away and FHA guidelines are getting more and more strict.
FHA Mortgage programs in the past have been pretty lenient on credit scores in the mid 500's, but as the US mortgage and housing crisis continues, even FHA's mortgage underwriting guidelines are tightening up. Below you'll find a breakdown of your plan of attack if your are considering buying a home and if you have had some minor credit problems in the past.
Credit Scores Less Than 580
Get copy of credit report and check for errors, look into credit repair as one option to raise scores, establish credit to raise scores, payoff some more debt to raise scores, check into debt settlement. If you are a VET – check with a VA Lender. Otherwise you could check with an FHA Approved Lender to see if they can get you a mortgage. It is more likely that you will need to do some work on your credit scores before you can qualify to get them above at least a 580 but more likely above 600.
If you are going to apply for a mortgage, before you pay anything off, make sure that you check with your loan officer first. Also, do some more checking in GetPreQualified’s articles on Credit Repair to look into how to payoff bad debt, when to payoff bad debt - you may not have to for certain types of loans like FHA.
Credit Scores Greater Than 580
Check with an FHA Approved Lender. It the FHA Lender cannot do your loan, then probably it will be because your credit report still has some problems with it that need to be fixed or you will need some more time or both. But there could be a lot of reasons so make sure you ask your loan officer for some guidance.
If your credit scores are better than 620 you can begin to look at conventional financing, but you may still want to go with FHA because of better interest rates and mortgage insurance with FHA at lower credit scores than compared to Fannie Mae and Freddie Mac. If you are a VET – VA may be a great alternative for you.
Also, if your credit scores are less than 740 Fannie Mae and Freddie Mac are charging some pretty high fees so FHA may be your cheaper way to go. Again, take a look at both options with your loan officer.
Credit Problems Are Less Than 12 Months Ago
Chances are, if you had credit problems within the past year you will end up having to wait at least 12 months from your problems before you can begin to look at a mortgage. You will have to wait for primarily 2 reasons: qualifying guidelines for FHA and VA require the last 12 months of credit history to be near perfect; and it will take some time for your credit score to rebound on its own to allow you to qualify.
Fannie Mae and Freddie might allow a late payment here and there, but with a late payment within the past 12 months – especially following a Foreclosure or a Bankruptcy will most likely have your credit score too low for Fannie or Freddie loans.
Credit Problems Are More Than 12 Months Ago
If you get to more than 12 months away from your credit problems, the best place to start with your mortgage and buying a home is with your credit report. If it hasn't been stressed enough already - your credit report and scores are the keys to the mortgage and home ownership kingdom. Get your report and check your scores and refer to the sections above for whether your scores are above 580 or below to see what is next for you.
A Summary Of Buying a Home With Prior Credit Problems
- If you have credit scores less than 580: take the time to get them up above 600, then check with an FHA approved lender.
- If you have credit scores greater than 580: check with an FHA lender.
- If you have had credit problems within the past 12 months: get your credit report, wait 12 months from your programs and then check with an FHA lender.
- If you have credit problems more than 12 months ago: get a copy of your credit report and check with an FHA lender.
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