(THE MONEY PROS) - WHAT IMPACT DOES YOUR CREDIT RECORD AND/OR SCORE PLAY IN YOUR ABILITY TO GET A MORTGAGE?
Your credit score plays a very important role in, not only your ability to get a mortgage, but also the cost of the loan. All mortgage programs have a minimum score to acquire a loan and if your score is not high enough you will not be able to obtain the loan. And a poor credit score could cost you as much as 1% extra in interest per year. Additionally, if you do not place 20% as a down payment your private mortgage insurance (PMI) could have a higher rate if you have a poor credit score.
IF YOU HAVE BAD CREDIT LIKE A CREDIT CARD DEFAULT OR SIGNIFICANT LATE PAYMENT HISTORY, OR WORSE, A SHORT SALE OR DEFAULT, DOES THAT MEAN YOU CAN'T GET A MORTGAGE?
A foreclosure would require you to wait 3 years until you could get a mortgage. During that period you will need to reestablish credit by opening new credit cards and showing a good repayment history. Short sales are generally treated as a foreclosure for credit purposes. And typically a lender will require you to be in default before agreeing to a short sale.
CREDIT IS NOT THE ONLY FACTOR IS YOUR ABILITY TO OBTAIN A MORTGAGE, CAN YOU TELL US ABOUT SOME OF THE OTHERS?
- Sustainable Income: show history of income that supports your debt payment.
- Savings: show where the down payment is coming from and how much reserve you will have after the transaction.
IF SOMEONES CREDIT IS SO POOR THAT THEY CAN NOT OBTAIN A BANK LOAN, ARE THERE ANY OTHER OPTIONS FOR PURCHASING A HOME OTHER THAN JUST PAYING CASH?
They could obtain a private loan. But, unfortunately, the terms and costs will not be very favorable. Another option may be seller financing.