For prospective homebuyers with bad credit, the mortgage scene is a little grim right now. Lenders across the country have been forced to tighten their standards as a result of rising foreclosure rates and mortgage defaults. Before you can qualify for a home loan you might have to spend some time cleaning up that bad credit of yours.
Stricter Standards Makes Bad Credit Hurt
In a recent survey the Federal Reserve found that over 56% of senior loan officers polled were enforcing stricter lending practices when working with bad credit borrowers. In recent years lenders were allowing borrowers to take out home loans based on their ability to pay back on low introductory teaser rates. That practice has come back to haunt many in the mortgage business, who are now being forced to make sure potential borrowers can afford the home loan even after rates adjust upward. Down payment requirements are getting tighter and credit scores in the low 600s or less might make it harder to qualify.
Getting a Home Loan: Three Steps You Can Take To Clean Things Up
In a recent San Francisco Chronicle interview California mortgage broker Bruce Honaker said, "if somebody comes into the office now with less than perfect credit and no down payment, they're eight or nine months away from (getting a mortgage)."
Taking the time to clean up your credit report will pay off in the long run. Here are some tips to get you started:
Check for inaccuracies. You'd be surprised how many consumers find mistakes on their credit report.
Resolve any accounts you have in collections. You might find creditors willing to work with you on payment plans or settlement terms.
Pay your bills on time. This can have a tremendous impact on cleaning up your bad credit. Lenders want to see a reliable payment history before they'll offer you a home loan.
Cleaning up your bad credit in order to qualify for a mortgage isn't impossible, but it does take time. Contact a few mortgage lenders once you've started cleaning up your credit and shop around to find the best deal on a home loan.
Mortgage Credit Problems Columnist
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