I want to get a house in the near future(ideally within 6 mo. to a year) and my credit is very poor right now. Basically, I was working in a job that I could barely make it on, and missed payments on my 3 credit cards for the past 3-4 months. I also have some collections. I started a new job where I am making double the money I used to make. I am now trying to get everything paid down and should be in "paid as agreed" status on everything for next month, but I am pretty upset at the hit my credit has taken. I also am paying roughly twice as much in rent as a mortgage payment would be on the type of house I have been looking at, so I'd really like to purchase a house if possible. Basically I am just wondering what my chances might be at getting approved for a mortgage. If you need any more information please let me know. Thanks!!
4 Answers
With bad credit but good income, I would simply save a large down payment. You're much more likely to get a mortgage with 25% down and a history of recently saving that 25% to show.
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look for a bank that will do manual underwriting - that is, the "old fashioned" way of deciding if a loan is worth the risk (from the bank's perspective). Rather than looking at your credit score and putting a mark on your forehead because it's "bad", manual underwriting looks at your assets and income and assesses whether providing a loan is worth the risk. With a 20% or greater down payment and a great income, the risk (for the bank) is low. Oct 31, 2017 at 20:13
I also am paying roughly twice as much in rent as a mortgage payment would be on the type of house I have been looking at, so I'd really like to purchase a house if possible.
Sounds like I need to rain on your parade a bit: there's a lot more to owning a house than the mortgage. Property tax, insurance, PMI, and maintenance are things that throw this off. You'll also be paying more interest than normal given your recent credit history. It's still possible that buying is better than renting, but one really should run the detailed math on this. For example, looking at houses around where I live, insurance, property tax and special assessments over the course of a year roughly equal the mortgage payments annually.
You probably won't be able to get a loan just yet. If you've just started your new job it will take a while to build a documentable income history sufficient for lenders. But take heart! As you take the next year to save up a down payment / build up an emergency fund you'll discover that credit score improves with time. However, it's crucial that you don't do anything to mess with the score. Pay all your bills on time. Don't take out a car loan. Don't close your old revolving accounts.
But most of all, don't worry. Rent hurts (I rent too) but in many parts of the US owning hurts more, as your property values fall. A house down the street from my dear old mother has been on the market for several months at a price 33 percent lower than her most recent appraisals. I'm comfortable waiting until markets stabilize / start rising before jumping on real estate.
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Well, you're not really raining on anything, as I already was aware of that. The biggest trouble is that for my family size (6) what we can afford to rent is far too small for what we need. In our area though there are plenty of homes that are affordable that would be great. Thanks for the advice :)– user4350Aug 7, 2011 at 7:52
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2@OP If you save up for the house you need (for need read 'want') rather than trying to buy it now, it will end up costing you much less over the long term. Spend a year living in a rented house smaller than you would like and you'll be putting yourself on a sound financial footing. That's much more important than a little extra space. Aug 8, 2011 at 15:16
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Good point; if you need the space renting a house is an entirely reasonable solution, not always more expensive, preserves your option in case you need to relocate, and not only gives you time to save and to repair the credit record but will help you nail down exactly what you want your house to be.– keshlamMay 24, 2015 at 1:03
First step, pull a copy of your credit report, and score. You should monitor that score and do what you can to bring it up.
Your chances are far better if (a) you first save a sizable downpayment, and (b) go with a local bank that doesn't just write the mortgage and sell it. Better still, go to that local bank and inquire about REO (real estate owned by the bank) property. These are properties they foreclosed on and depending how they are carrying them, you might find decent opportunities. As a matter of logic, a local bank that owns these specific properties (as compared to debt pools where big banks have piles of paper owned fractionally) are more willing to get a new owner in and paying a new loan.
Congrats on the new, higher, income. I'd suggest you first build the emergency fund before the downpayment fund. Let us know how it goes.
The bottom line, is that you are doing the right thing now: correcting your past indiscretions. Get those collections taken care of, then start saving for a down payment. Of course, during this time, you should pay your bills early or on time.
During that time your credit will improve dramatically.
I bet that this will not be an issue once you have your down payment saved, so the point is moot.
However, with outstanding collections it is very unlikely you will get a loan. In my own case, I had to pay a collection, that I did not owe, in order to obtain a mortgage. It was for a small amount and the loan officer told me that "it is the cost of doing business". Ship $150 and my loan when through free and clear.
