First Time Home Buyers
There are certain ways for first time home buyers to get prepared when it comes to the home buying process. If you intend on purchasing a new home in the near future, you should start consulting with a a mortgage lender to see whether you qualify for a mortgage and what you qualify for. As long as you have proof of income, you will qualify as long as you have fair credit.
You can get a copy of your credit report and see where you stand and what your credit scores are. However, before you start repairing your credit or buy any high ticket item such as a new car, I strongly recommend that you consult with a mortgage lender. Mortgage brokers do not charge you anything and can pull your credit at no cost and give you a copy of your credit report and advise you on what to do you improve your credit scores in the event if you do not qualify for a residential mortgage loan. Your mortgage broker can also tell you what the maximum amount of mortgage loan you qualify for and the minimum down payment you need to cough up and what your estimated closing costs will be on a home purchase transaction.
Once you consult with a mortgage broker, your mortgage broker will run your credit and review your credit report. Your mortgage broker will go over your credit report with you to see if all of the information on your credit report is correct. If there are errors on your credit report, your mortgage broker will advise you on ways to correct them by disputing it with the three major credit reporting agencies or by contacting the creditor directly. If you have had prior bad credit and have no credit whatsoever, your mortgage broker might advise you to get several secure credit cards to boost your credit scores and add positive credit to your credit report and start to develop credit tradelines.
Many mortgage lenders require three to four credit tradelines. A credit tradeline is a credit history with at least a 12 month seasoning. You can also use non-traditional tradelines in lieu of traditional tradelines. Non-traditional tradelines are creditors like cell phone carriers, insurance companies, landlords, electric companies, gas companies, water companies, and other creditors that traditionally does not report your payment history to the three major credit reporting agencies.
Recent Late Payments
If you had recent late payments, you might have problems qualifying for a residential mortgage loan. You can have prior bad credit as well as open collections and older late payments and derogatory credit, however, most mortgage lenders want to see timely payment history in the past 12 months. Multiple recent late payments will be a problem and your credit scores will definitely suffer as well. First time home buyers with multiple recent late payments may need to way six or more months before they apply for a residential mortgage loan. First time home buyers with recent multiple late payments on their credit report may want to add positive credit such as three to five secured credit cards to offset the negative derogatory credit. All these tips, your mortgage loan originator can advise you on it.
Credit Scores And Home Loan Programs
Besides your credit report and your credit payment history, your credit scores are also equally as important. Your credit scores will be the determinant on what type of residential mortgage loan program you will qualify for. For example, to qualify for a 3.5% down payment home purchase FHA insured mortgage loan, the minimum credit score the mortgage loan borrower needs is 580 FICO. To qualify for a conventional loan, the minimum credit score a mortgage loan borrower needs is 620 FICO.
Down Payment Requirements
First time home buyers who want to buy a home with a 3.5% down payment but do not have a 580 FICO credit score, they need to first work on getting their credit scores to 580 FICO or higher in order to qualify. Raising a person’s credit score is possible but the key question is the timing. Depending on how poor the credit score is, it may take some time in order to improve first time home buyers credit scores. There are quick fixes for boosting credit scores such as paying down credit card balances. Those mortgage loan borrowers with no credit whatsoever and old bad credit can easily boost their credit scores by getting a few secured credit cards. Some folks in these situations can easily boost their credit score by 100 or more points by getting three to five secured credit cards as soon as in a month. Others who have credit scores under 500 due to too many derogatory credit items may need to enroll in a professional credit repair program. Credit repair programs are useless if you are trying to remove derogatory credit items that are fresh. By fresh, I mean that any recent derogatory credit items that are newer than 6 months old will not be effective by disputing the creditor if it is valid because they will have records readily available.