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Fix your credit before shopping for a mortgage

[Jan 13, 2011.]

 

Don't even think about shopping for a home mortgage if you have bad credit. Having a low credit score is going to keep you from qualifying for the best mortgage rates, and in many cases will keep you from getting approved for any type of home loan. Take the following steps to clean up your credit before getting serious about looking for a home.



  • Give yourself time. You may want to buy a home in six months, but it may take a year or even two years to get your credit where it needs to be to qualify for the best mortgage rates. Be realistic about the amount of work it's going to take to rebuild your credit.

  • Focus on paying off debt. The best thing you can do is pay off all credit card debt and other loans before even approaching mortgage lenders. Many mortgage lenders don't want to lend to borrowers who have high levels of debt. Paying off credit cards and other debts and getting control of your spending puts you in a better position to keep up with mortgage payments when you finally do get a home loan.

  • Fix mistakes on your credit report. Many credit reports have errors. Those mistakes include misspelled names, incorrect social security numbers, outdated credit card balances, and wrong information. Review a copy of your report from the three major credit bureaus--Equifax, Trans Union, and Experian--to make sure all information is correct and up to date.

  • Always pay bills on time. Paying bills on time will help increase your credit score and show lenders that you can consistently handling financial obligations.

  • Take care of any legal obligations. Don't let outstanding judgments, unpaid child support, or court-ordered alimony payments keep you from getting a mortgage. Find a way to become current on these financial obligations now so they won't come back to haunt you when you apply for a home mortgage.


If necessary, work with a debt counselor who can help you put together a plan to clean up your credit. Look for a nonprofit credit counselor who charges a low fee or offers free services if you are having serious financial troubles. While you may be eager to buy a home now, taking time to clean up credit first will pay off when you finally begin a house hunt.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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