Many first time homebuyers are afraid they cannot qualify for a home loan because of bad credit and many people incorrectly assume they have bad credit because of a few late payments. The truth is, most people CAN qualify for a mortgage unless their credit score is very low (less than 500). The lower your credit score, the higher your interest rate may be, but you can still get a loan. If you have had a few late payments, you may still have a decent credit score. The more time that has passed since the late payments the better. Even if your credit score is very low, you can improve it in a very short period of time. In reality anyone can get a loan, it is just that the terms of the loan will be worse with bad credit and it will be harder to find a lender. 

Repair Your Credit

You may have seen advertisements from companies who claim they can repair your credit. In my opinion, these companies can not do anything to improve your credit that you could not do on your own. Many of these companies charge hundreds of dollars to do exactly what I will describe below. Follow these simple instructions and you will be on your way to better credit and one step closer to being able to own your own home.

Determine Your Credit Score

You can determine your credit score by contacting each of the three major credit reporting agencies (Transunion, Equifax and Experian), but I would recommend you go to www.myfico.com. At My Fico you can receive a credit report from each of the three major credit reporting agencies at one time for one flat fee.

Review Your Credit Reports

Carefully review the report you receive from each agency. Jot down all negatives and any questionable items on each of the reports. It helps if you can print out the reports and highlight these items. Each report will have instructions for you to follow to dispute any items you feel are incorrect.

Dispute Inaccurate Negative Information

Credit repair companies may tell you to dispute all negative information whether you feel it is inaccurate or not. When you dispute a negative item, the company that placed the negative item on your credit report must verify the negative information to the reporting agency within thirty days. Many of these companies are so busy they aren't able to respond to the request within the thirty day time frame. If they do not respond, the credit reporting agency must remove the negative information from your credit report.

Negative items should be removed from your credit report, by the credit reporting agency, seven years after they were placed on your report, so be sure to dispute any items that are over seven years old.

Credit Reporting Mix-ups

If you have a common name such as Smith or Johnson you may find many items on your credit report that don't belong to you. Many years ago when I was turned down for a loan I checked my credit and found the reporting agency had intermingled my credit report with another person who had the same name. It took several months to clear up, but it was worth it to restore my good credit. Dispute anything you are unsure about.

Seeing Improvement

It may take several months to improve your credit score, but it will improve if you make on time payments to your current creditors and take steps to remove any incorrect negative information.

Apply For a Home Loan 

Once you have completed your credit score improvement plan, apply for your home loan. Being pre-qualified for a mortgage makes you a more desirable buyer to the seller. It also helps you to shop for homes in the correct price range. There is nothing more disappointing than finding a house you love and not being able to afford it.

Contact several mortgage companies and ask them about their programs. Some may have 100% or low money down financing programs. Ask about the credit scores needed to qualify for their programs, what the interest rates will be, and what the APR will be. The APR is the only real way to compare mortgage loans as it reflects all fees the lender charges.

Also ask whether there are any pre-payment penalties on the loan. Don't accept a loan with a pre-payment penalty and don't feel you must go through a lender's application process in order to get information on their loan programs. If they push you to make an application before they will give you the information, politely thank them for their time and hang up. There are MANY mortgage brokers out there and they all want to give you a loan. Most work on commission and don't make any money unless they can close your loan. Don't be intimidated by them.

Find Your Dream Home

You can begin to look for homes on your own or contact a licensed Real Estate professional to help you with your search. Using a licensed agent should make your search a lot easier. Most agents can set up automated searches that send you emails with all available homes that meet your specific search criteria. You then get all listings as soon as they hit the multiple listing service. Feel free to contact me regarding your home search or call me anytime at 813-230-5804.