Wanting to buy a home and not sure where to turn or what to do when you have had credit problems can be frustrating. The days of getting a mortgage with bad credit (credit scores less than 550 and late payments within the past 12 months) with a subprime mortgage are over for now since the mortgage crash of 2007.
Chances are, if you have had some recent credit problems you may not qualify for a mortgage with Fannie Mae and Freddie Mac, but you may be eligible for a FHA, VA or a USDA mortgage.
Depending on the type of credit problems you have had in the past you may be able to start your home buying process sooner than you think. No matter your situation though, with some work on your credit report and letting some time pass you will be able to qualify for a mortgage again.
Where Do I Start To Buy A Home After Credit Problems?
Your very first step is to get a full copy of your credit report with your credit scores. You will need to pay for it. Free reports won’t help you in this case if you are serious about mapping out a roadmap to owning a home. Your ability to qualify for a mortgage in the future will be based on your credit report – so it truly is the place to start with your mortgage and home buying process.
If you want to find out about getting a mortgage and you have had a bankruptcy or a foreclosure, please see: Mortgage After A Foreclosure - Getting A Mortgage After A Bankruptcy.
Outside of Bankruptcy and Foreclosure, credit problems that warrant further inspection are late credit card payments, car loan payments, student loan payments, medical collections, a minor phone bill collection, maybe a small credit card charge off. All of these problems can get in the way of getting a mortgage because they will all drop your credit scores. They also suggest to the lender that you are a credit risk and if the account problems are severe enough they may not approve you for a mortgage.
Credit Scores An Important Factor For Getting A Mortgage
Basically the credit score cutoff for getting a mortgage and not being able to get a mortgage is around 580 to 600 credit scores. The range and trend, as of August 2008, is closer towards 600, but there are FHA lenders out there who will work with lower credit scores but these lenders are few and far between. Fannie Mae and Freddie Mac, or PMI Companies – Private Mortgage Insurance - basically won’t consider you for a mortgage if you have credit scores less than 620.
Typically, FHA and VA Mortgages have not had an underwriting criteria based on FICO Scores. However with the mortgage and credit crisis that banks, Freddie Mac, Fannie Mae, and FHA are facing, FHA and VA Approved Lenders are beginning to look closer at FICO scores to use them as an unwritten guideline to aide in their decision making for approving mortgages.
Recent Credit History Another Important Factor For Getting A Mortgage
This guideline is pretty cut and dry for FHA and VA – if you have had late payments in any of your credit accounts within the past year, you are probably not going to qualify for a mortgage. While FHA and VA do not outright consider Credit Scores, they do look heavily at your last 12 months of credit history. It just so happens that your last 12 months of credit history are highly important in your credit scores too.
If you have had credit problems within the past 12 months and you want to buy a home, then you should draw a circle on your calendar and go 12 months from there as your target date for getting a mortgage. During that time you should do everything in your power to increase your credit scores.
With Bad Credit Fannie Mae And Freddie Mac Are Not Your Answer Either
If getting an FHA or VA mortgage is not an option for you for whatever reason, Fannie Mae and Freddie Mac are going to be pretty tight on your last 12-24 months of credit history too. They generally do not like any late payments within the past 12 months but they may approve a mortgage for you with a slight credit problem during this time. They will inquire about late payments between 12-24 months. If you have late payments in the time period be prepared to give a good reason why. Again, if you have had credit problems within the past 12 months chances are your credit scores are going to be too low to qualify for Fannie or Freddie loans.
Basically in summary, if you have had minor credit problems within the past 12 months, give yourself 12 months from the time your problems were until you apply for a mortgage. During this time do what you can to get your credit scores up: don’t open more credit, don’t close any accounts, pay down debt, don’t take on more debt, pay your bills on time – for more information see: Credit Score Factors – Four Mistakes To Avoid For Higher Scores. Once you get past 12 months from your problems call an FHA approved lender and apply for a mortgage.
