Overcoming Credit Obstacles in Home Financing

Overcoming Credit Obstacles in Home Financing: Tips and Solutions 

For many people, becoming a homeowner is a major life goal. If you wish to buy your dream home in the coming years, there are numerous hurdles you must know how to navigate. Along with saving for a sizable down payment, you should also get your credit in order. Lenders maintain specific requirements that borrowers must meet to gain loan approval. Let’s delve into some of the credit obstacles that might affect your application.  

Common Credit Obstacles to Overcome 

If you’re thinking of applying for a mortgage, you should first learn about the many credit issues that can arise during the approval process, which include everything from a low score to significant debt obligations. 

Considerable Debt 

When a loan officer evaluates your application, they’ll examine your credit score and report to determine if you qualify for a mortgage. They’ll also consider how much debt you’re carrying as part of this process. Let’s say that you have a decent credit score but a 50% debt-to-income ratio. You may need to improve your situation to qualify. If you have a lot of debt on your credit cards, this could be an obstacle to getting your application approved.  

Income Issues 

Another major credit obstacle you can face involves your income. High income can offset the risk that a lender accepts when approving a loan for a borrower with a middling credit score. However, income issues can make it more difficult for your loan application to be approved by the underwriter. If they discover that you’re earning less than you say you are, they may deny your application. Gaining approval for a mortgage might be more challenging if you’re a seasonal employee or a self-employed individual.  

Poor Credit History and Score 

Your loan approval can also be negatively impacted by issues with your credit history and score. Let’s say that you have several missed payments in your credit history from a few years ago. Lenders will look at this unfavorably. However, a late payment will leave your credit history after seven years. It also becomes less important over time.  

If you’ve been involved in a foreclosure or short sale over the past five years, you may need to prove to the lender that the property has been sold and that you no longer need to pay the debt. If you have been financially linked to another property in recent years, this will show up in your credit history. Like late payments, this information will fall off your report after seven years.  

Closed Credit Lines 

When a borrower wants to improve their credit situation, they may choose to pay off all their existing debts. If you use this same strategy, it’s crucial that you don’t close your credit lines and accounts. While it’s great to get rid of debt, lenders prefer when accounts are kept open. It shows that you have a lengthy credit history that’s in good standing. 

How to Navigate these Challenges 

While there are several credit obstacles that you should avoid, there are also ways to navigate these challenges and get approved for a loan. 

Take Steps to Improve Your Credit Score 

If your credit score is lower than you’d like, focus on improving your credit score. Avoid new debt until you apply for the mortgage loan. During that period, make all your payments on time. Consider creating reminders or setting up auto payments to avoid late bills.  

It’s also a good idea to pay down some of the higher debt balances that you owe. Let’s say that your credit score is currently 675. By taking small steps to improve your credit, you should be able to push your score above 700 in no time.  

If you have high credit utilization, try to get it below 30%. For example, if you have $10,000 in available credit, keep your balance below $3,000. Anything you do to improve your creditworthiness will show up in your history, which may be enough for a lender to approve your loan.  

Review Your Credit Report

Your credit score could be damaged by inaccuracies as well. Most borrowers don’t check their credit reports before applying for loans. This is a mistake. To review your credit report, request it from the three primary credit bureaus, which include TransUnion, Equifax, and Experian. 

Once you receive these reports, review them for any issues or inaccuracies that might be negatively impacting your score. If you discover an error, dispute it immediately to ensure it’s fully removed before you apply for home financing.  

Apply for Low-Credit Financing 

If you don’t want to wait months or years for your credit score to improve substantially, consider applying for low-credit financing. Here at BuyHouseEZ, our goal is to make sure everyone can become a homeowner, regardless of what’s in their credit history. We offer accessible and flexible financing solutions that allow people to become homeowners even if they don’t qualify for conventional mortgages.  

When you apply for a loan through our private licensed lender program, we won’t check your credit score. We know that everyone has a unique path to being a homeowner, which is why we provide alternative financing solutions.  

Increase Your Down Payment  

You may be able to lower the lender’s credit requirement by increasing your down payment. A larger down payment may reduce the risk that the lender takes on when accepting a lower score. If you make a down payment above 20%, you’ll also avoid private mortgage insurance (PMI). 

Consider a Co-Signer 

If your credit situation isn’t great, consider including a co-signer on your application. This person can be a friend or family member with great credit. Keep in mind, however, that the co-signer must agree to take responsibility for your mortgage payments if you default. 

You should never feel like it’s impossible to qualify for a mortgage in Indiana. If you want to successfully overcome the numerous credit obstacles that can occur when seeking home financing, focus on either improving your score or exploring more flexible financing solutions. Get in touch with BuyHouseEz today to learn more about how you can finance a new home. 

Popular articles

Join our team and start closing more deals