Many people are sitting on the sidelines just waiting until they are eligible to re-enter the housing market and become homeowners again. These large numbers of people usually have a few things in common but most commonly it is that their credit scores have been hurt by a past foreclosure, short sale or bankruptcy. I have listed a few tips that will help you be prepared if you find yourself in this situation.
1. First and foremost you need to pull your credit report so that you know what is on it and how it is being reported. One of the best places to do this www.annualcreditreport.com. This site is free and you are able to get copies of your reports from all 3 bureaus. When looking at this report pay close attention to the negative accounts being reported. Don’t assume that the mortgage lender that you used to have is reporting your last mortgage correctly. Often times if you did a short sale the account is not being reported that way and the way it is coded can cause you future issues.
2. Talk with a reputable mortgage broker and explain to them what happened in your past. Ask them what the current guidelines are for credit score requirements and waiting periods that apply based on your past mortgage history.
3. Pay special attention to credit card accounts you have on your report. If you currently do not have any open and active credit cards you will want to get one. Not having one could severely damage your credit score. If you have one, or more, you want to pay special attention to your balance compared to the limits. As a rule of thumb, the lower your balances are the better. The best place to be for your FICO score is to get the balance at or below 10% of the limit on your card.
4. Don’t be afraid to ask for help. Too many people assume their credit is fine. They fall in love with a new house and then find out they don’t qualify. A better approach is to get some help understanding your credit before you start house hunting. Think of your credit report like your resume. It makes sense to check it and clean it up before you apply for your dream job.
Hopefully these simple tips will help you to avoid some future heartache while helping to make your next home purchase an enjoyable experience.