Are Your Finances Healthy Enough For A Mortgage?

Posted on: 25 July 2018

People who have faced financial problems do not automatically consider the possibility of becoming a homeowner, but they might well consider it. The Federal Housing Administration (FHA) has loan guarantee programs that allow people with past financial issues to pursue their dreams of owning a home of their own. Read on to learn more.

Credit Score Blues

A low credit score might be one of the first major stumbling blocks a potential homeowner faces. Being late on paying bills, having judgments against you, owing too much money to too many creditors and more can all work against your having a decent score. If you are trying to get approved for a mortgage, a decent score might be in the 700's and up. The higher the score, the lower your interest rate and the more home you can afford. Too low of a score might mean that you will miss out on a loan altogether.

If you have made the major decision to get your credit in shape in the hopes of getting a mortgage, the FHA might have a solution. Using this method, you can be approved for a mortgage as long as your score is at least 580 with a 3.5% down payment. For those with lower scores than that, a minimum score of 500 might garner you a loan as long as you can come up with at least 10% down.

Bankruptcy Blues

As you probably knew before you filed, a bankruptcy will result in a negative notation on your credit report for several years. Just having a bankruptcy, however, is not reason enough to give up on owning your own home. As long as you have worked hard on improving your financial situation since the time of the filing, the FHA will consider you for a loan guarantee offer. There are also some time restraints to consider. It must have been at least two years since your bankruptcy was final (not when you file, but the date on your final discharge).

Get Ready to Apply

You can improve your creditworthiness for a mortgage approval by taking steps in advance of your application. The below steps are great for almost anyone applying for a home loan but are even more important for those who've dealt with financial issues in the past.

1. Too many credit inquiries not only make you look desperate to get credit but will bring your score down. Space out your applications and keep them to a bare minimum.

2. Even a day late paying a credit card bill will haunt you for years, so pay ahead of time and do so automatically if you can.

3. Avoid using all of your available credit. Leaving a certain amount of credit available on each account can raise your score.

4. Be assertive about correcting mistakes on your credit report. It can take more time to accomplish a correction than you imagine, and you want to be ready to apply for your mortgage when the time is right.

Once you know that your dreams of being a homeowner can be realized, speak to a real estate who will be your supporting partner in achieving that goal. For more information on finding homes for sale near you, contact your local realtor.