5b. Common credit challenges
5c. The importance of checking your credit
5d. Using letters of explanation
5e. How to build a good credit history
Read the full Chapter Five in one page
Before starting the process to purchase HUD homes, it is important to get your finances in order, which includes preparing your credit for the purchase of a home. Many people feel that they will never be able to purchase a home due to bad credit or no credit. However, purchasing government foreclosures is a nontraditional form of home buying that can offer those with no credit or less than perfect credit to finally realize their dream of home ownership.
The good news for potential buyers is that almost every credit issue can be taken care of in some way. In some cases, buyers may need to take a bit of time to deal with credit disputes or to raise their credit score. In some cases, potential buyers may be able to compose letters of explanation that explain negative marks on their credit report, which may result in a lender approving their mortgage. Those who have no credit history can even find excellent ways to establish a credit history so they too are able to qualify to purchase a HUD home.
In this chapter, buyers will find more information on some of the most common credit challenges and important strategies that enable them to prepare their credit for the buying process.
Credit Myths About Purchasing a Home
No matter a buyer’s financial situation, credit is important when purchasing any home, including HUD homes. Although many realize that credit is an important factor when making a purchase, many credit myths exist today that buyers must be aware of if they are planning the purchase of government foreclosures in the future. The following are several of the most common credit myths regarding a home purchase.
Myth #1 – There’s No Need for Those Who Pay Bills on Time to Worry About Credit
Many potential buyers think that there is no need to worry about their credit score and credit report if they always pay bills on time. For instance, they may have never defaulted on a credit card bill or loan, but this does not mean that buyers should not worry about their credit score and report. Many different factors actually affect the credit report and the credit score, which means that simply paying bills on time may not be enough to provide buyers with good credit. Credit bureaus take into account ratio of available credit to credit used, length of credit history and the types of credit being used. Scoring low on a couple factors could lower an overall credit score, even if buyers are consistently paying bills on time.
Myth #2 – Checking Credit Scores is Enough
While buyers definitely should check their credit scores, they should never ignore their credit report if they plan to purchase a home in the near future. Lenders look at more than just the buyer’s credit score before making a decision – they also look at the buyer’s credit report. Buyers must know what is on their credit report to ensure any errors on the report are taken care of or addressed.
Myth #3 – Checking Credit Reports and Score is Difficult
Many buyers fail to look further into their credit history before considering government foreclosures because they feel it is too difficult. Today buyers will find it easier than ever to check both their credit score and their credit report. Sites like YourScoreAndMore.com make it fast and easy to check credit scores and allow consumers to get a copy of their credit report from each credit reporting agency.
Myth #4 – A Mortgage is Unattainable with Less Than Perfect Credit
While a good credit report and high credit score definitely helps when trying to get a home mortgage, less than perfect credit does not mean that a mortgage is unattainable. Many solutions are available for credit problems, allowing buyers to work on improving credit before purchasing HUD homes.