Recently I received an email from a an applicant who had $25,000 for a down payment. That was great news! But the news turned quickly when the applicant informed me that his credit scores were in the low 500's. With credit being so tight in today's market, you might have 50% or more down payment but with a low credit score it could keep you from buying your dream home. The following are a few tips I was able to relay to this applicant in hopes of helping him achieve his goal:
Currently the FHA guideline is requiring a 620 and higher credit score. If your credit score falls below this benchmark, you will definitely need to work on your credit scores before officially applying. Some tips to help you improve your score:
If you have several student loans, there is a way to consolidate your student loans to get one, low payment. We've had customers able to do this for a one time deal with the creditor.
Pay off any collections if you have any. Try to make settlement with them. Some will accept less than the balance. You've got to ask. Keep receipts and good records of everything you pay off that is delinquent. My experience has been that some collection companies collect their money and then do not update your credit file. This is why you need to keep good receipts. Copies of cancelled checks stored with the offer/bill from the collector
It is better to have two credit cards with half the balance used than to have one credit card maxed out to the limit.
Try not to apply for any new credit cards whether they be store cards or major credit cards.
Do not shop for a new car. They inquire on your credit. If you move to a new place or make changes, electric companies, phone companies, cell phone companies, car insurance companies will put your credit as well.
If you have any lates on your report (30 days or more) it just takes some time for those to get farther behind you. The best policy is not be late on anything in the future.
Start by getting a copy of your credit report for free. There are 3 bureaus that need to be obtained as they all report different accounts. Meaning, you could have one account that reports to Experian but not to the other two and vice-versa.
If you do not have a copy of your credit report, the government has made a website where you can pull your own for free once a year and it does not hurt your score if you pull it yourself. http://www.annualcreditreport.com/. If you get started on this now straightening out your credit and then look at your report a year from now - (normally how long it takes to improve). Check against your records to make sure they match all that you've done over the past year.
If you have limited credit or a lack of credit, FHA will use your rental records, car insurance payments, cell phone bill, utility bills, and any other items in your named to build your credit just for the purchase transaction...not for your official credit file.
The main item of business is to get your credit score higher.
Keep in touch and let me know how you are doing with improving your scores. You can always e-mail me or call with any questions. 321-243-4917. I sincerely hope to hear from you when you are ready to BUY!
Posted by JoAnn Young
