Now coming full circle, I am seeing many of these people come back and ask about getting a home loan and buying a home after foreclosure. When they ask “Can I buy a home again?” I have great news for them. The answer is!!!

Maybe.

I know. That was kind of messed up. Get your hopes up like that and then jump right into reality. But thats what people want; They want answers that are real not fluff.

So today I am going to spell out what your options are so that whether you are now several years past your “troubles” or are just about to enter them, you will fully understand what your options are.

Understand what it takes to get a loan today

Loan guidelines can change. Sometimes daily; So its important that you stay up to date on them. My suggestion would be to form a relationship with a lender that is an expert on credit. This way you can periodically communicate with them about whats going on in lending and make sure that you are doing what you can to stay qualified.

When we meet with a prospect the first thing we do is lay out a detailed “Map to success”. We look at what their credit score is now and review all the factors that contribute to it. We discuss what needs to be done with each item and discuss a time-frame for accomplishing these things.

A typical client may need anywhere from 30 days to 12 months to fix any credit related issues.

The most common issues you may deal with if you have had a foreclosure or bankruptcy are:

1. FHA requires a minimum of 3 years since a Foreclosure, Bankruptcy or the last 120 day late (considered the same as a foreclosure to underwriters)
2. You cannot have any derogatory credit in the last 12 months. (No late pays etc.)
3. Credit score must be a minimum of 620. (there is a “hit” or penalty to the rate below 660…this is a Lender thing, not FHA)
4. Make sure all of the debts included in a Bankruptcy are being reported to the credit bureaus as “Included in Bankruptcy”. Items often report inaccurately and can impact your scores or an underwriting decision as it could cause it too look like you were late or had a derogatory report (see #2)
5. FHA allows you to have up to $4,000 in Medical Collections however all other Collections and Judgments must be satisfied.
6. To have a good credit score after Bankruptcy or Foreclosure the most important thing you can do after you have “stopped the bleeding” is establish 3 revolving lines of credit (read: Credit Cards) and keep the balances below 30% of the available credit limit (10% is optimal). DO NOT use Store credit for this strategy. One of the best methods is to obtain an overdraft protection line of credit on a checking account. They report just as if they were a credit card and help re-establish credit scores.

Look for opportunities to own now

We have a lot of clients who own their home now and do not qualify for a loan.

This is possible by finding a home where the seller is willing to finance the property for them. Often called Seller Financing or a Contract for Deed, this method can allow you all the same rights and benefits of buying a home with a traditional mortgage without having to be fully qualified at the time of purchase.

This is sometimes confusing, so often what I do is have people imagine something smaller than a home. Think of a car. Lets say I have a car that I want to sell and someone comes along and says they want my car but they cannot get a loan right now.

Lets also assume I own the car outright, so there is no loan still owed against it.

I have the option to sell it to them and they would make payments to me rather than a bank or credit union. The terms of the agreement are completely negotiable between me and my buyer.

This gives you some big benefits:

1. You own it legally. This means any interest paid is likely tax deductible (I am not a CPA, please consult one before signing any agreements)
2. When the time comes to get a Mortgage you can now refinance rather than get a loan for a purchase. Refinances typically have less closing costs so you save money!
3. Money spent on the property benefits you not a landlord.

This might seem a little backwards, but owning a house first and then working on your credit as you work towards refinancing can be a great way to go. This is a great strategy that is a legitimate way to have your cake and eat it too.

Summary

If you know ahead of time what you are aiming for you can make sure you hit your target. Get with a lender that is an expert with Credit, its worth knowing ahead of time what you need to do to be ready for the day when your credit is back on track.

If you would like to own a home but have had some credit issues we are a local Mortgage Bank located in Utah. We have branches from Salt Lake City,  Layton, and Riverdale Utah. We specialize in working with people that have had credit problems but want to get back on track. Whether you are just about to file Bankruptcy or think it might be time to buy again, call us and we will discuss all your questions and show you all the options available. We are Utah Mortgage Team and our address is 101 N Fort Lane #104 Layton, UT 84041.

Buying a home with bad credit is more common than you might think, EVEN if you filed Bankruptcy, or had a Foreclosure YESTERDAY.

This technique is OLD, but so few people know how to do it. Many Realtors don’t even know how to make this happen. The ones who do guard this information because its so valuable to anyone looking to get into a home that may have had credit issues in the past.

What if I told you, that RIGHT now in this market you could get a great interest rate while having bad credit? One couple in Ogden just bought a house and their rate is 6.75% and their scores are Below 600.

So if its so common, and so easy why DON’T the “experts” know about it?

I could talk for hours about the why, but whats important for you to know is that YOU CAN, and it doesn’t require a huge 10 or 20% down payment.

So what is this strategy called? It has lots of names, and variations. It is often called Owner Financing – Seller Financing – Lease Option – Contract for Deed. All have subtle differences, advantages and disadvantages and details that you will want to understand BUT the bottom line is you CAN get into a house TODAY.

There are tons of opportunities out there created by this current housing market and We can help you find a property and work through each and every step of the process.

Call and talk with one of the Utah Mortgage Team today about getting into a home regardless of your credit

AND

With Utah Mortgage Team, your credit problems can be a thing of the past. Ask us about our cost free path to great credit scores.

]]> http://utahmortgageteam.com/2010/05/lending-strategy-lets-you-get-a-mortgage-with-bad-credit/feed/ 0 http://utahmortgageteam.com/2010/03/how-to-get-a-good-credit-score/ http://utahmortgageteam.com/2010/03/how-to-get-a-good-credit-score/#comments Tue, 30 Mar 2010 21:16:52 +0000 Corey http://utahmortgageteam.com/?p=175 How to get a good credit score is a question that is both easy and difficult to answer. Meaning some aspects of it are constant and straightforward, and others can vary depending upon circumstance. First, lets talk a little about the principles that remain constant. Some are obvious, but its always good to review.

• Paying your bills on time (Late payments are HUGE credit killers)

• Don’t get in over your head (A good rule of thumb is never use more than 45% of your income on Housing and Transportation expenses combined) This actually has little bearing on your actual credit score, but the implications are obvious, people in over their head tend to get in trouble, have late payments etc.

• Get on a Budget (Like the old saying goes, those that fail to plan, plan to fail) Its hard…I KNOW it is, but this is one of the single greatest indicators of financial success. Those that dont have discipline in their spending rarely have a good credit score for long.

• Use credit as a tool. (It is a means to an end. ALWAYS have your outcome in mind when you use credit. Using it without a purpose is a recipe for disaster) Building a credit score by charging items that you HAVE the cash to pay for, or supplementing cash flow for a business are valid reasons to use a credit card. Christmas spending that you didn’t save up for…is NOT.

Dave Ramsey often refers to credit scores as “I Love Debt Scores” and he is right. He is the prototypical “millionaire next door” meaning despite him having an above average income, he lives below his means, saves money, invests it well, follows a budget and DOES NOT USE CREDIT AT ALL. For this reason, he does not have a credit score.

Credit Cards: Your Best Friend…Your Worst Enemy

This scenario plays out at least 3-4 times a week when I meet with people about getting a home loan.

I ask the borrowers if they know anything about their credit. If it is good they tell me how they ALWAYS pay everything on time and always have since 1982 and they have cut up all their credit cards because they don’t believe in them.

I then pull their credit and they are dismayed to find that they do not have amazing credit scores. They might be average, or low, or non existent.

“WHY!?” they ask.

And I tell them; You don’t believe in Credit cards.

There are essentially two factors that come in to obtaining and maintaining good credit. Depth, and Credit usage. These are my own terminology, and are not actual words used by the credit bureaus or the industry at large per se. I simply use them to illustrate ‘how it works in the real world’.

You see paying your house or car on time every month is OUTSTANDING…when a human looks at your credit. It says you are responsible, it says you care about paying your debts.

On the other hand the mathematical equation used to determine your credit score (called an Algorithm, and typically provided by FICO or Fair Issacs Corporation) looks at this factor with little weight in the over all big picture.

On the other hand, a person with the very same credit profile who also has 3 revolving (read credit cards) lines of credit that had perfect payment histories over a 5 year period, who never carried more than a 30% balance (this number is somewhat debated amongst credit experts and varies from 10-45%) would likely have a much higher credit score.

So in laymans terms…a Credit score is an indicator of who borrows money and pays it back the most often. Or who makes the banks a lot of interest. THEY will have high credit scores.

Why? Because Credit Bureaus are in the business of selling information.

They sell YOUR information to lenders.

Lenders want to know who will make them money.

Credit scores indicate who will make them money.

Thus, having and using credit cards will get you a high credit score.

Lesser Known Facts

Here are some pointers that are not quite so commonly known about obtaining and maintaining a great credit score

• Never use more than 30% of your available credit (It’s a good rule of thumb for your spending, but its crucial for your credit score) There are times when you actually need to “go into debt to go into debt” meaning if you know you are coming up on a large purchase such as a house, refinancing or a car it might be worthwhile to put a balance on your credit card(s). This needs to be done well in advance of applying for the new credit because creditors typically only update once a month. So if you charge your groceries on the 20th, and go apply for credit the next day, it won’t show up and your credit score won’t be affected.

• Open and Maintain 3 revolving lines of credit for 5 years (Often opening a new revolving line of credit for a borrower with zero credit cards will provide an immediate boost to their scores) Having said that, over time they will need two more to establish good credit depth in the eyes of the credit bureaus. The longer this history is reported the better credit scores tend to be.

• Become an Authorized User (This was supposedly done away with, but we have proven it still works with certain companies) The idea comes from a law that was passed in the 1970′s to allow parents to help their kids build up a credit history. Essentially you can take and add your child or spouse (or relative, or…well anyone) and add them as an authorized user to an existing credit card account. Once this information reports to the credit bureau they “piggy back” on your account and your good credit history would report on your report AND theirs. In theory this could allow whoever was added to the account to make charges. However if the card holder provides their own address for the new authorized users card to be delivered to, they can destroy the card and make it impossible for the authorized user to make any charges to the account. For those looking to build a credit history this can be a valuable tool.

• Open an Overdraft Protection Line of Credit Often people who “dont believe in credit cards” will simply refuse to give in, even for the sake of getting better credit scores. If you fall into this category, one option is to apply for an overdraft protection line of credit. Yes it is still technically a credit card. However its purpose is very different. It merely protects you in the event that you ever go beyond your checking account balance. However the bureaus see it as a credit card. This is a great strategy for building a credit score without having to give in to the evil forces of capital one.

• Stay Away From Store Credit Whether its a Jewelery store, Home Depot, Best Buy or Sears…just pass. Not only are the rates and fee’s often exorbitant, even in comparison to some major credit cards, but they are not “created equal” in the eyes of the credit bureaus. For the purposes of building credit stick to good old fashioned credit cards.

• DON’T dispute every single thing on your credit report Often so called credit repair companies will dispute everything on a persons credit that isn’t a perfect account. This can do more harm than good at times. The math behind your credit score is complex to say the least. It is heavily weighted towards the newest items, and as things age they become less important to how your score is calculated. One curiosity is that sometimes removing a negative item from your credit can LOWER your score. One example is a satisfied collection account that was revolving. Odd as it may sound, sometimes these get reported as open and revolving accounts. Losing that history will lower your score.

Following these tips will help anyone get the best rates on any type of loan be it a Mortgage or a Car Loan. Credit is increasingly used in Insurance as well to help determine risk. Not to mention by prospective employers for Job candidates.

We Finance Anyone

But I digress. In recent years since the sub prime melt down, this has started to change. Initially FHA began requiring a minimum 580 FICO score. Many lenders moved their own guidelines to 620, in spite of FHA’s lower mandate. Now, we are seeing many lenders inching towards the 640 mark as a minimum credit score requirement to get a loan.

So what does this mean for anyone looking to buy a home or refinance in Utah?

Well, first you need to know that not ALL lenders are requiring a 640…YET.

We can still help even if you have NO credit score, below a 600 Credit score, and of course if you have great credit we can help you.

What you need to remember is that it is crucial that you are very diligent about protecting your credit rating. If it is good now, make sure it stays that way by following our tips on how to get and keep a great credit score. If you have poor credit but want to buy a home, we are just the guys you want to talk to. We have over 8 years of experience helping people improve their credit so they can buy a home.

Call or Email us today and we will show you how we can over come credit issues and help anyone own a home.