Buying Homes with Bruised Credit
We all know somebody who has been through rough times. Businesses fail, marriages fall apart, and people get laid off. Sometimes affected individuals can hold themselves together financially, sometimes not. When life’s challenges cause people to juggle bills and miss payments, they often end up with bruised credit.
Some potential homebuyers wrongfully assume that they are doomed to a lifetime of renting because of their blemished or bruised credit record. This notion is often false. Many of these borrowers have compensating factors that may allow them to still purchase a home even in the wake of financial maelstrom.
Recent bankruptcies or current collections do not automatically disqualify borrowers from getting mortgages. Mortgage lenders in these “non-conforming” scenarios will usually grant mortgages if the borrowers have a minimum credit score, if they have one or more “good-scored” credit references, and if they can put a meaningful down payment toward their home purchase.
Depending on the type of mortgage, it often helps for borrowers to write a letter to the mortgage underwriter explaining the situation that caused their financial problems. Some of my recent clients have legitimately cited the death of a sibling, the loss of a primary breadwinner, and long-term hospitalization. In each of these cases, we were able to provide the loan underwriter documentation validating the claim.
In most cases, lenders primarily want to know how you have handled your credit since your financial struggles. If you exhibit the same pattern of behavior that led to your earlier financial problems, you will likely have trouble getting a mortgage. Conversely, if you bounced back and maintained excellent credit since your setback, you may have a good shot at a mortgage.
If you have been denied credit for any reason, you may get free copies of your credit report from each of the three major credit repositories: (800)685-5000 (Equifax), (800)888-4213 (Transunion), or (888)397-3742 (Experian).
Remember, a skilled mortgage professional can usually find financing for borrowers if the borrowers are truly motivated. It takes hard work, creativity, and patience—but often these borrowers are usually very happy with the result: a home of their own.
++ Republished as a courtesy of Phillips International LLC. Readers may contact a mortgage professional at www.PhillipsHQ.com/mortgage.
I found the credit restoration part of this website to be very useful. Home buyers can use consumer protection laws to have derogatory items removed from their credit reports.
Comment by Tia John — March 7, 2009 @ 8:19 pm