So you’ve done your research, know what kind of house you’re looking for and in what kind of neighborhood. Now you’re ready to go shopping for your new abode.
But unless you have $100,000 or more in loose change lying around, you’re going to have to borrow the money to buy that house. And that means having someone else examine your credit.
You ought to take a look first.
You may already have an idea what it will look like. Maybe it’ll be good. Maybe it’ll be bad. It might even be ugly.
But no matter how bad, you may still be able to buy a home. It just means you’ll have to work harder, and maybe pay a little more, to get it.
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Negative credit remains on your credit history for seven years and bankruptcy stays on for 10 years, but even borrowers with less than stellar credit can purchase a home in today’s friendly market.
“With some lenders, you can file for bankruptcy today and get a home in a day or two if you have a 30 percent down payment and are willing to pay a higher interest rate,” said James Gleason, of USB Home Lending in Milwaukee.
Gleason works with mortgage brokers who specialize in working with borrowers who have credit problems. He said the easiest way for consumers to locate a problem on their credit report is to look at the report themselves.
“You want to get an idea of what’s bringing your credit score down and make arrangements to fix it,” he said.
To do that, you need to obtain a copy of your credit report.
If you have been denied a credit card or a loan, you can request a free copy of your credit history, said Cassandra Slade, executive director of Housing Resources Inc., a housing advocacy group in Milwaukee. If you have not been denied credit, but still would like to get a copy, you probably will have to pay a fee.
“The first thing you want to do after you obtain your credit report is check for mistakes. There could be items (on the report) that were paid off that may still be reported as open,” Slade said.
If you have proof that a bill was paid, send a copy to the credit bureau and within 60 days check to make sure that the error was corrected.
Other items that may appear on the credit report that a potential borrower may not know about is medical collections or utility bills that were not paid.
The borrower should request a copy of statements showing such bills have been paid to use as receipts.
When the borrower’s credit history is cleared, a borrower should sit down with a lender to go over the report.
“A lender is going to want to see that there have been no late payments over the past year. If there are late payments, the lender will want a letter of explanation,” Gleason said.
If the borrower does not qualify for a loan backed by Fannie Mae or Freddie Mac, he may still qualify for a sub-prime loan, in which only the last three years of an applicant’s credit history is examined, compared to the 10 years used by Fannie Mae and Freddie Mac.
Sub-prime loans are offered at higher interest rates.
Both Gleason and Slade said that after living under the terms of a “sub-prime” agreement, a borrower can refinance about two years later if he or she has maintained a strong credit history during that time.
To obtain a copy of your credit report call one of the following credit bureaus:
Trans Union: 800-916-8800.
Equifax-CSC: 800-759-5979.
Experian: 800-682-7654.