A home is the largest purchase most of us will make. Getting your finances in order to qualify for a home loan takes a little effort. There are many things that can affect your credit – even if you have enough money to make the loan payments.
On the other hand, you may qualify for a home loan even when you think you can’t. Having negative things on your credit history, like chapter 13 bankruptcy, doesn’t completely write you off for getting a loan. Here are a few tips to fix your credit as your prepare to get a home loan.
Creditors will look at your debt to income ratio to determine if you qualify for a certain loan. This is the percentage of your monthly income that goes toward paying debt – whether it is car loans, credit card debt, student loans, or something else.
Before you apply for a loan, there are a few things you can do to lower your debt-to-income ratio. The simplest way to start is to pay down credit cards. If you have money in savings, it will be well spent on paying down consumer debt. Look into your credit card information, and pay down credit cards that are closest to their maximum balance first.
Another way to lower debt-to-income ratio is to increase your income, which is often easier said than done. Pick up a side job. Do a little extra work on the weekends. This can be temporary as you try to pay off the debt.
When creditors look at your work history, they like to see at least two years of history with your current employer. Stick with the same employer for at least two years so that lenders see stability in your work history.
A down payment will assist you in getting a lower interest rate on your loan. Having the largest down payment possible will work in your favor. You may need to start saving months, or even years, in advance to get a significant chunk of money saved. Create a budget that will keep you on track to pay down debt and save for a down payment.
Bad Credit History
Bad credit history is bad credit history. And, as hard as you may try some things just won’t come off your credit. However, this doesn’t mean you are not a candidate for a home loan. Bankruptcy, foreclosures, short-sales and divorce can all take a toll on credit scores. These things will stay on your credit, but you can qualify for a loan sooner than you think.
Many people believe these strikes against your credit will stay on for more than seven years. This is not the case. In many cases, you can qualify for a loan in as little as three years after a foreclosure and five years after a bankruptcy. The smart thing to do is contact a loan officer to if you can qualify.
Steve Oliver is a representative for Credit Info Center, the ultimate resource for getting help with managing your credit score. He enjoys the outdoors, and loves to frequent the lake to get out on his wakeboard and jet skis. He has 2 dogs, 1 cat and a pet python named Frankie.