The most important aspect of home buying could very well be securing a loan to purchase your new home. You should be educated about your credit score and how it is determined. There are some major variables involved in your credit report that determine your ability to buy a house.
- Chapter 7 – In order to be eligible to obtain a loan, your bankruptcy must have been discharged for a period of 2 years dating from the discharge date to the date of the new loan funding. It can be detrimental to your chances of obtaining a loan if there have been any late payments after your discharge date.
- Chapter 13 – Loan eligibility requires the bankruptcy to be discharged and the repayment plan to have perfect history.
Collections – Collections accounts are the most common black mark on a credit report. Most of the time they are permitted but are sometimes required to be rectified prior to closing.
Credit Repair – There are many companies that can help you with “repairing” or “improving” your credit score. Most mortgage professionals have a working relationship with these types of companies and can you refer you to a reputable one. Be very cautious as to your commitment to any company that promises things to be completed by certain time; there is no guarantee that there will be an improvement when it comes to credit scoring.
Disputed Items – Many people’s credit report contain “disputed accounts” that they often times are not even aware they are being disputed. Recent mortgage industry changes have now required that these accounts that are reflecting as disputed be addressed and rectified prior to closing. This can be a simple process or a quite complex process if creditors closed down and are no longer in business.
Foreclosure – Loan eligibility requires the foreclosure to be three years from the date of public trustee sale. Keep in mind the title has to have been transferred that same time as the clock starts when the title is transferred.
Inquiring New Debt – It can be very detrimental for loan applicants to apply for and/or obtain new revolving or installment debt during the mortgage process. The general rules of thumb is have your mortgage professional run your credit report at the time of application and then do NOT authorize any other company or person to obtain your credit report until you have the keys to your new house. During the mortgage process, credit is monitored randomly and new inquiries may be required to be explained and new debt accounted for which could affect your qualification chances drastically. Do not apply for credit during the mortgage process.
Judgments – There are numerous types of judgments, if you have one it will need to be resolved prior to the acquisition of any property.
Late Payments – Recent late payments will have to be explained to the underwriter and could cause denial of the loan. The general rule of thumb is no late payments in the recent 12 months. This is also most often a “case by case” scenario. Any kind of mortgage late payments in the preceding 12 months will not be tolerated.
Liens – Tax liens are the most common kind of lien. Most liens are required to be satisfied in order to have full loan eligibility however FHA loans can be granted in some instances to Federal Tax Liens.
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