While you may think you're ready to buy a house, your credit score may tell a different tale: if it's too low, your bank might not want to take the risk that you'll end up defaulting on the loan. Fortunately, all hope is not lost if you don't have a high score. You may qualify for a government-backed loan now, or you may need to do some legwork to improve your score over the next several months to several years. Keep your eye on your goal of home ownership, and do what you need to in order to get your finances, and your credit score, under control.
Request your free annual copy of your credit report from each of the three major credit reporting agencies. Knowing exactly what is on your report will give you a broad picture of any debts and issues that you need to settle before applying for a mortgage. Check the report carefully for errors, and notify the agency in question if you do find any mistakes.
Compile the financial documents that a bank lender would need to see. The U.S. Department of Housing and Urban Development lists some of the paperwork that you will need to have available. It includes checking and savings account statements, pay stubs, credit card and other loan balances and two years' worth of income tax statements for you and your partner.
Talk to a lender about your financial situation. All the speculating in the world won't give you a definitive answer to "do I qualify?" The New Jersey Mortgage and Finance Agency advises biting the bullet and sitting down with someone who can give you real answers about your specific credit issues.
Look into the requirements of federal mortgage programs, or FHA, recommends the U.S. Department of Housing and Urban Development. These programs are designed for buyers with lower-than-average credit scores, who may not have a lot of money available for a large down payment or to cover high closing costs. Visit the HUD website or ask your lender for more information.
Deal with your credit issues if they are preventing you from obtaining a mortgage. The Federal Trade Commission suggests contacting your creditors to work out payment plans, setting a reasonable budget and working on raising your credit score. Depending on what your score is, even a few more points may make the difference between whether you are qualified for a mortgage.
Pursue credit counseling if you cannot handle your debt and raise your credit scores on your own. Find a reputable agency by asking your lender, credit union, university or military base for a recommendation.
- The Federal Trade Commission warns against working with hard money lenders, or those who offer to finance your mortgage regardless of your credit score. These are often scams, says the FTC, and may charge exorbitant fees or might not even be registered in your state to lend money. Avoid falling into the trap of dealing with these unscrupulous lenders, even though it takes more time and effort to raise your credit score or search for a reputable lender.
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