One of the most important components of buying and financing a home is the credit profile of the homebuyer. Contrary to what many people think, a buyer’s credit does not have to be perfect.
Major derogatories, like foreclosures and bankruptcies, will have an impact on whether someone can obtain mortgage financing. Generally, a credit score of 600 is required, but in some cases, a 580 will be accepted.
Obviously, there are times when a credit score is below the required minimum. In those circumstances, there are a few courses of action that can help to improve a score.
A credit enhancement model, offered through a credit reporting agency, can help. This model will give suggestions of actions that can be taken to improve credit scores. The most common item is to pay down existing credit card balances to 30 percent or less of the credit limit.
Sometimes, the borrower does not have sufficient credit history to obtain a higher score. Opening a new account with a limit of $300 and initial charge of $10 can boost the score once that new account is posted. Paying off past due balances can sometimes help.
There are times when the suggested actions won’t increase the credit score enough to obtain financing. That’s when it is recommended to seek a relationship with a company that has a more formal approach to repairing credit.
This option, in most cases, does require a fee from the customer.
The company will challenge certain items on the report, and ask for deletions by the creditors. This process can take some time, but there have been many borrowers who have had success with this approach.
The key for those planning to buy a home sometime in the future is to have their credit reviewed to determine if there are any items that need to be addressed.
If a new home is something your family wants to pursue this coming year, take action now if there is any doubt about the purchaser’s ability to qualify. It is much easier to handle those items several months in advance, rather than waiting until one falls in love with a house. You don’t want to experience the heartbreak some folks face because they just weren’t able to make it happen due to their credit.
There is nothing like a proactive purchaser that realizes the importance of good credit! Start today to discuss your concerns.
Amanda Maletz is a mortgage consultant with On Q Financial. Amanda.Maletz@ OnQFinancial.com