First Time Home Buyer with Bad Credit? Don’t Panic!

First Time Home Buyer with Bad Credit? Don’t Panic!

Having a poor credit score doesn’t mean your dream of owning a house is out of reach. Click here for tips on being a first time home buyer with bad credit.

Having bad credit can be expensive as you may end up paying higher interest rates and putting down more collateral to get a loan. It may not even seem possible to become a first time home buyer with bad credit.

But there are ways for people with the worst credit to qualify for home buyer loans.

Perhaps you’ve just got a short credit history. Some people might have racked up all sorts of debt while in college. There are financial bumps in the road for everyone.

The great thing about bad credit is that it’s not permanent. While it might take some time to recover from charged-off loans or a history of late payments, recovery is achievable for everyone.

If you’re a first time home buyer with bad credit, follow these 5 steps to get where you want to be.

1. Get Some Perspective On Being A First Time Home Buyer With Bad Credit

The first thing you need to know is just how bad your credit is. If you know you’ve got bill collectors calling, outstanding loans, and can’t seem to make a payment on time, you probably feel like your credit stinks.

Unless you take a look at your credit score, you may never know.

It can be like ripping a band-aid off, but sometimes you just have to get in and do it. Log into one of the three major credit reporting companies (Equifax, TransUnion, and Experian) and see what your score looks like.

Federal laws entitle you to be able to get a free look at your score every year from Annual Credit Report.

Once you know your number, you can start building it up. You might not be as bad off as you thought. You’ll never know until you take a peek.

2. Check Your Information

If you don’t like the number you see, don’t panic. It could be off for a lot of reasons.

Verify that all of the contact information listed along with your account is correct. There have been reports for years about people with similar-sounding or common names being penalized for other people’s credit mistakes. Even the biggest companies make mistakes.

Once you’ve confirmed that your name, addresses, and social security information are all correct, make sure that all of the accounts are correct. Maybe you’ve closed out an account and it never got reported. Or else you might have something outstanding that you didn’t realize.

If there are accounts listed that you don’t recognize at all, pick up the phone.

This is one of the number one ways that people discover they’ve been a victim of identity theft.

Accounts are opened in their names, charges are made, and somewhere, someone is benefiting from that theft. Meanwhile, you suffer the consequences.

Sometimes, debts that you do actually have open are listed multiple times. This is a functional problem of the loaning agency and you should feel implored to let them know.

3. Know When To Dispute

If you’re about to apply for a loan, having a charge in dispute doesn’t look good. When there are things on your account that you don’t agree with or information that is wrong, handle them long before or long after you apply for a loan.

While you may be right, your bank won’t look kindly on this.

A report that’s under dispute could be automatically rejected by the computer system. After that, you can have it referred to an agent to get a “manual underwrite”, which is your right but could extend the period you’re waiting for approval.

For best results, dispute once the mortgage is approved and you’re in the clear.

If you hire a company to handle incorrect data on your credit report, be ready to shell out a few hundred dollars. They will help by getting items removed and write letters on your behalf. But make sure you vet the agency first by looking at their references and reviews online.

It’s possible to handle disputes on your own but you need to make sure you’re dealing with the right company. Follow the directions laid out on the Federal Trade Commission’s website to be sure you have your documentation in order.

4. Start By Prequalifying

Once your credit report is corrected, you’ll be in much better shape. Cleaning up your credit report before you seek approval for a loan can make a first time home buyer with bad credit look like a risk worth taking.

Once you decide which bank or loan agency you want to work with, ask them to move forward with the pre-qualification or pre-approval process. Once your application looks good to your lender, they will run it through their standard system.

This is called “Desktop Underwriting”.

5. Go Through Desktop Underwriting

Desktop Underwriting is a process to help expedite the steps of getting your mortgage approved. It can be quite a maze but this process is meant to make your pre-approval come back more quickly.

This software is intended to help qualify any prospective first time home buyer with bad credit using the guidelines created by Fannie Mae and Freddie Mac. It is primarily used for FHA and Conventional loans. Various states could have their own automated systems.

Check to see what is used in your state and see how rigorous it is.

While you might not get the result from this digital system, you do have the option of working with an underwriter directly. If you have a unique application, or your credit was damaged because of a well-documented identity theft, you may want to use manual underwriting.

The major difference is that this is an extremely long process that could take months to approve.

Instead of waiting, see if your loan provider offers installment loans for poor credit individuals.

A First Time Home Buyer With Bad Credit Should Have Hope

If you’re worried about whether or not you’ll ever get the home you dreamed of, you won’t know whether you’re qualified until you look at your score. After you see the score, see what you can do to fix any issues with it.

It’s not impossible to bring a credit score back from the dead. If you’re ready to get your first time home buyer loan, with bad credit or not, contact us to begin the process.