My husband and I want to get out of renting for many reasons. While we love our home, we rent from an absolutely terrible property management company, our rental payment is more expensive than a mortgage payment would be, and I'm tired of having to ask for permission to do absolutely anything on the property. That said, despite trying to build our credit for over 5 years, we still have subpar credit scores (think ~650). We have gotten a couple credit cards each and have been using and paying these off in full every month for years. We also got a loan and paid that off in hopes of raising our scores. Anyways, my question is do you remember around where your score was when you got approved for a loan? Do you know what score lenders look for? And does anyone have a recommendation as to what lenders we should be approaching when we are ready? Thanks in advance for any and all advice
One thing that I would ask you is whether you have looked at your credit report to see how you could improve your score. There are usually ideas about ways that you could do this. I have had a couple of friends who have had mistakes on their credit reports, and this has meant that they have had a lower score reported than they should really have, and therefore they were struggling to get any kind of credit as a result of this. Make sure that everything that's on there is yours, and if there is anything that you are concerned about, get in touch with them to ask about it. It is more than worth it as it means that you can start to improve your score and look forward to owning your own home.
As far as lenders, I would start with a local bank you are familiar and comfortable with. You could just ask for general information, or you could set up a formal meeting to see what you're pre-approved for and see if they have any suggestions for improving your credit. I prefer working with a local bank because the service level just seems to be more personal. Some banks offer no closing costs for first time buyers, so I would ask around to see if anyone in your area is offering a deal like that. You can often go online to check local banks current interest rates so you'll have an idea of who is offering what. You could also ask some well-known realtors to see who they suggest working with. Realtors deal with a lot of banks during the closing process, so they often have a good feel for who makes the process smooth for buyers.
Gemma: We look at our reports on a regular basis. Unfortunately everything that is bringing us down are very large, old medical bills, and we aren't in a position to pay them off because they are pretty big. We have tried working with the creditors, but they will not budge unfortunately. Steph: I am going to take your advice and speak with a realtor and get their opinion on a lender. I definitely don't want to go through our credit union - they will not even approve us for a small credit card despite being perfect members for many years! They are very picky
I am in the same boat with trying to buy a house in a couple of years and having a bad credit score at the moment. What I did was get in touch with a mortgage lender directly. He is going to assist us with getting our credit scores in the shape needed for a home loan. We are planning to go FHA so our credit only needs to be at about a 650 to qualify. Getting in touch with a loan officer to help you would probably be the best bet.
The number one thing that I have learned is that maxing cards out then paying them at the end of the month actually hurts your credit score. You can improve your credit by having 33% or less of your total limit. 35% of your credit score is how much credit you have available. If you do not have alot available then your score will suffer. This is true even if you do pay it monthly because they will use the average daily balance to report to the bureaus.
I just heard from my potential mortgage lender that you should never carry a credit card balance of over 50% each month. Instead of trying to pay off a single card, work toward getting them all paid down to 50% or less of your credit limit. Thus will help your score in the long run.
They will also be looking at your debt to income (DTI) ratio. If you have lots of credit cards or loans, those will make your DTI higher than they want it to be. If the largest percentage of your income is being used to pay off debt, that will work against you. I'd try to pay off a couple of those credit cards and keep the balance low on the others. Don't max them out. Also, it is a good idea to speak to a lender as advised above. They are motivated to help you.
