Thank you to our Guest Blogger Michael Plambeck, the founder and owner of Home Loans For All.
Securing a home loan if you have a less than ideal credit score is not an easy feat. You’re going to be facing a dizzying amount of options and important decisions that you will need to make. Fortunately, there are a number of smart ways to secure home financing with a low credit score.
Working With a Financial Advisor
A financial advisor works with you along with a budgeting coach, credit cleaner, estate planner, loan officer, and real estate professional to ensure you are making your dream of home ownership a reality.
Financial advisors like Shanna Tingom of Heritage Financial Strategies in Gilbert can refer you to professionals in these other areas so you can work with your complete financial team.
Assess Your Debt and Work in Improving Your Credit Score
One of the smartest ways to secure home financing with a low credit score, is to print and review your credit with a loan officer or credit cleaning agency. Even if you’re not able to secure a loan immediately, they can provide the steps to becoming able to do so. They may advise you track the balances on credit cards and set a plan for you to eliminate debt. The lower your debt to income ratio, the better for you when it comes to raising your credit score.
Credit Cards and Home Financing with a Low Credit Score
Your financial team may advise not opening new credit card accounts, or any other loans, while you are trying to raise your credit score. They may also advise leaving unused cards open. Having too many new accounts, especially if you have been managing your credit for quite some time, will lower your score due to lack of credit information. Having too many accounts is also a massive red flag as it impacts the debt to income ratio.
You may choose to use a secured debt credit card as it can increase scores. Basically, you put down a minimum amount like $500 and use the card like any other credit card. It is secured because your line of credit is your own cash; you’re showing credit reporting agencies and banks that you’re credit worthy. Over time, you will see your credit score increase.
Budgeting and Bill Paying
If you’re seeking a mortgage, you’ve got to prove to the lender that you’re going to pay back the debt. They want to see that you pay your bills on time. We recommend incorporating due dates for bills on your calendar and automating payments to avoid late fees.
Keep in mind, however, paying off amounts that have gone to collections will not be removed from your credit report right away. Unfortunately, this will remain on your credit report for 7 years, so make sure you keep this in mind and focus on other things you can do even after the collection account has been fully paid off. This is where a credit cleaning agency can be helpful to understanding the impact of paying debts.
Figuring out smart ways to secure home financing with a low credit score can be extremely frustrating, leaving you feeling hopeless when things aren’t going the way you expected. Take heart. There are professionals who can help you get your credit to where it needs to be and assist you in finding a lender so you can make your dream of home ownership a reality.
Michael Plambeck, the founder and owner of Home Loans For All, bridges the gap between our content team and our industry team by being an expert in both areas. Michael is a home loan expert who has worked closely with loan officers and realtors for over four years, and who is engaged in constant continuing education to make sure that he’s up-to-date on all real estate laws and regulations.
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