What do I need to qualify?  What can I do if I Have Bad Credit?

The housing market is hopping, and qualifying for a home loan is not as challenging as you thought. If you’re in a rental, you know it’s much more economical to buy than lease. What do you do if your credit is lackluster when lenders have such high demands on loans these days?

The good news is you can stop throwing away your money and helping landlords stash cash. You can buy a home if your credit sucks and even if you’ve filed for bankruptcy. You need to know how to qualify for a home loan so that you can live out the American dream.

The 411 on Credit Scores and Loans

Credit scores are everything. To get in with the big lenders at a prime rate, you will need over 700 on your FICO. However, you can still get a home loan even if your score is nowhere near this level. It would help if you familiarized yourself with the various types of loans and what they can do for you.

  1. FHA – Federal Housing Administration

FHA loans are one of the best options for those with poor credit. Did you know that you can get one of these loans with a credit score as low as 500? Just because FHA will back a loan with a score, this low doesn’t mean the lender will. It would be best if you found a lender that will cater to your specific credit needs.

The good news is that most lenders will take a credit score of 580 for FHA. The beauty of these loans is that you can put as little as 3.5 percent down. The interest rates are low and the down payment doable, so it’s an excellent option.

  1. VA – Veterans Administration Loans

VA loans are for anyone who has ever served in the military. You will need a credit score of 620, but you can put no money down and won’t be required to pay PMI. It’s a great option if you’ve served the country.

  1. 502 USDA Guaranteed Loan

Another fantastic option for those with lower credit scores is the USDA loan. They require a FICO of 640, and they also have no down payment or PMI requirements. These loans are in areas with a lower population and individuals who usually don’t qualify with traditional or conventional methods.

The person who gets a 502 loan is usually lower income. They can get repayment terms of 33 to 38 years and an interest rate as low as one percent.

  1. Checking Account Statement Loans

Another issue that many people run into is being self-employed. When you’re trying to get a loan and deducting as much as possible, it can often be a significant issue. So, many lenders will offer to check account statement loans that show your ability to repay. There are higher fees for this type of loan, but it’s an option when you’re denied through using your tax forms.

Qualifying for A Home Loan

Each lender has specific qualifications, but they are pretty much the same across the board. The most common requirements are:

  • Bankruptcies must be discharged for more than two years
  • Little to no collection activity
  • No judgments or federal tax liens (especially if using a federally backed program like FHA)
  • 1-2 years of verifiable income
  • No slow pays
  • Credit scores of 580 and above (varies from lenders)
  • Debt to income ratio that doesn’t exceed 36 percent
  • Credit with a reasonable length (36 months is best)
  • Low to an average amount of hard hits on your report
  • The number of credit cards and other debt that you can access

It may feel like you’re drowning in paperwork as you go through this extensive process. However, you should know that it’s worth it in the end.

How to Fix My Credit?

So, it may be the case that you have some issues with your credit that can keep you from getting approved. Timing is everything when you apply for a loan, and you don’t want to have the inquiries on your credit report if you know you won’t be approved. There are some steps you can take to get you creditworthy for a loan.

Step 1: Pay Down Credit Card Balances

The best thing you can do to boost your score quickly is to pay down your credit card balances. You need to have your usage at no more than 20 percent of the overall amount. So, if you have $10,000 in credit card debt, then you shouldn’t use more than $2,000, or your score will take a hit. The lower your balance, the better off you will be.

Step 2: Wait Two Years After Bankruptcy

If you filed for bankruptcy in the past few years, you need to be two years out. There’s no way around this one, as you will need to wait.

Step 3: Pay Off or Settle Collection Accounts

Some lenders won’t allow any collections, while others will allow a specific amount. When you pay off debts or settle them for less, it will raise your credit score.

Step 4: Dispute Any Inaccuracies on Your Report

Another significant issue is that you may have things that are inaccurate in your report. Pull all three credit reports and look through them. Dispute anything erroneous that can weigh down your FICO.

Step 5: Take Care of Slow Pays

Making your payments on time is essential, but did you know that some credit card companies will re-age your account if you only had one issue. If there is one slow pay holding you back, then call and ask them to remove it as a courtesy. You will be shocked that many will oblige if you’re an otherwise good customer.

If you’re wondering how to fix my credit to get a home loan, then these steps should help you. If you have any repossessions or foreclosures, you will need to wait until they drop off to stop dragging down your score.

Final Thoughts on How to Qualify for A Home Loan

Even if your credit sucks, there are simple things you can do to boost your score. There are numerous loan programs out there that don’t expect perfection, but they require you to repay the mortgage without issue.

The best place to start is by getting your credit reports and seeing where you stand. Before you begin applying and having all those hard hits on your credit, you need to clean up issues that can cause you to be denied. The good news is that you can own a home and stop paying those outrageous rental costs.

Contact Sheridan Solomon & Associates Realtors Today

If you any more questions or need a little more guidance, the staff and realtors at Sheridan Solomon & Associate Realtors are real estate experts in Macon, GA, and Warner Robins, GA. Call or email us today, and we can get you on the pat.