How to Buy a House if You Have Credit Problems
Credit problems create many other problems and issues when you are in need of financing. Obtaining a mortgage will require you to clean up as many of your credit problems as possible. The older your past credit problems, the better. Mortgage lenders look the closest at the previous 24 months of your credit history. Working to clean up as many credit problems as you can, rather than waiting for your past credit problems to age will speed up the process of obtaining a mortgage loan.
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Instructions
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Review copies of all three of your credit reports. The three credit reporting agencies are Equifax, TransUnion and Experian.
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Create two lists: positive accounts and negative accounts. Any account that has shown positive account history for the past 24 months should remain on the positive list, even if you had late payments older than 24 months. Put any collection account or charged off account in the negative account list. For each collection account and charged off account, make a note of how much you owe the creditor.
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Write a dispute letter to each credit bureau and dispute any incorrect item on your credit report. A credit account may, in fact, be your account but federal law states that accounts must be reported accurately and completely (see Resources). This means if you find an incorrect balance, date, type of account or any other incorrect information related to the account, you can dispute this item. If a creditor does not reply to the credit bureau and fix the error within 30 days, the credit bureau will remove the entire account from your credit history.
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Contact each creditor you owe money to. You will not be allowed to purchase a house with any account in collection. Offer to settle the debt for 30 to 50 percent. The older the debt, the more likely you will be to settle for a lower amount. Tell the creditor the exact date you will pay the amount if it accepts your offer. Get the settlement agreement in writing.
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Send a letter to each collector you owe money to. Offer to pay the debt in full, if it will remove your negative history. A creditor is required by law to report complete and accurate information. It can, legally, not report your account at all.
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Pay down all balances on your credit cards. Get the balances under 20 percent of the credit line. If you are unable to pay the balance under 20 percent, pay it down as much as possible. This reduces your credit utilization.
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Review your credit situation after you have completed each of these steps. Visit with a mortgage lender who can determine where you stand and if your situation can qualify you for a home loan.
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Tips & Warnings
Do not open or close any accounts until you have met with a mortgage lender unless you are more than one year from wanting to purchase a home. Both of these actions can cause your score to drop.
References
Resources
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