You’ve nailed down why you want to own a house and figured out a monthly budget that gives you a payment amount you’re comfortable with. Great! Now it’s time for something you might have never thought about before: your credit.
Credit Is King
Let’s face it, in today’s day and age, credit is king. Your credit needs to be stellar in order to get the best terms, the best rate and the best offers. And yet so many people never check their credit.
You can go online to either Equifax.com or TransUnion.com to check out your credit report and score. They have many different types of services, but the free stuff doesn’t really tell you much. They’re a business and want to make money, after all. The fee is small, though, and it’s worth it to find out if your score is actually what you think it is. And if you’re willing to drop $20 on popcorn and a movie, you can certainly pay for your credit score.
Why You Need to Check Your Credit Before You Start House Hunting
Blemished or inaccurate credit can stop your mortgage journey right in its tracks. So it’s a good idea to look at your credit report and credit score before you find your dream home.
In the age of identity theft, you should be monitoring your credit on a regular basis. I actually encourage people to go online at least once a year to make sure nobody’s using your credit for fraud, or that no other weird things are happening. And if we do it in advance, we won’t suddenly be surprised when you have an offer on a place and at the eleventh hour we have a problem. It’s best that we deal with that sort of stuff upfront.
A Credit Story
Fraud aside, also keep in mind that the credit check you do isn’t necessarily always accurate. A client of mine recently paid for a service for his father to boost his credit score. He called me up and said, “My dad’s credit score is above 718!”
And I said, “Well, that’s fantastic, considering it was much lower before. You know what, why don’t you fill in an application and we’ll do a check ourselves.”
We did our own check and it came in below 600. So, there’s a big discrepancy there and he was quite shocked. Now, he’d been doing his credit monitoring through TransUnion, we did our search with Equifax. Typically, if your file’s pretty straightforward, you won’t find much inaccuracy. However, if you’ve had credit issues in the past, you will see different reporting numbers.
Even different lenders can see different things. For example, banks will see information that the consumer can’t see and sometimes we can’t see. So, a credit score is not a catchall for all things but it’s a really good place to start and you need to stay on top of it.
If you’ve got a low credit score or you’ve got bruised credit or anything like that, your dream of buying a home isn’t necessarily over. Once we know your situation, the next step is to figure out how to fix it.
There’s a myth out there that if you’ve gone through bankruptcy, you can’t ever buy a house again. And that’s not true! Provided you got out of bankruptcy more than two years ago and you’ve got two years of reestablished credit, you can get into a new house with a little as 5% down. So, you can get a second chance.
If you want to get into a house much sooner, a greater down payment will mitigate some of that bad credit. And if you do have bad credit that you’re working towards resolving, that’s something we can assist you with, but it’s certainly a good idea to get your credit score back on track.
Sometimes, what’ll happen is we’ll do a two-step mortgage process. It’s not a bad idea at times to look at a short-term mortgage with one lender just to get you into the market, to get your footing back in and get you reestablished. Later on in a year or two or three, we’ll take that mortgage out and go to a mainstream lender once again.
If your credit hasn’t been reestablished in full or you have bruised credit, there are still lenders that are doing what is called “equity lending.” Most equity lenders want to see a minimum of 20% down, and provided you have it, you have a reasonable chance at getting a mortgage. Again, it will vary case by case, but we have done lots of these situations where somebody has come out of a consumer proposal and achieved homeownership through equity lending.
And speaking of consumer proposals, we’ve even done situations where somebody refinanced an existing property and was able to pay a consumer proposal out of the refinance during this whole process.
If you’re purchasing a house with a partner, and it’s a situation where one of you has really poor credit, most lenders will look at the primary income earner’s credit. If it’s stellar credit, then it will be weighted more heavily for that. If it’s bad credit, then we’ll look for other solutions. If one income qualifies, sometimes what we’ll do is leave the other person off the mortgage, get your credit back on track, then come renewal time we’ll add them back on to the mortgage.
So, there are many options. Just because you’ve had bruised credit once or just because you've gone through a bankruptcy once, doesn’t mean the world is over and that there are no hopes or options for you. It's not as black and white as that.
Is Mine Good Enough To Qualify?