What is the best way to be able to buy a house with terrible credit 5 years ago?

Question

We are making all payments on time for 5 years now. What else can we do to help ourselves be able to buy a house in 1 year besides save money?

We have bankruptcy, repossessions and charge offs on our credit. Our record has been clean for 5 years.

Answer 1

5 years is a long time in the credit scoring world. You therefore might have pretty good credit by now. Well done on keeping things paid on time since then!

1. Pull your credit report. Check the items. Work on getting the mistakes corrected. Any item that is correct but showing as a negative needs to be addressed by bringing things current or otherwise getting it sorted.

2. Save. If you have a large down payment lenders care a lot less about the credit score. With a very large down payment some will not even pull credit. Rare but true.

3. With a larger down payment you can get a better interest rate. Keep some cash in reserve after you buy so you can keep all the bills current.

4. Avoid opening new credit accounts in the months before buying a home. You want to reduce the new activity on the account. Do not apply for credit as even applying can reduce your credit score.

One last thing. If you have some charged off accounts that are still reporting as new that could be a mistake or a trick that some collection agencies use. It is not exactly legal in all cases. If you choose to negotiate with them and reach a settlement to pay off for less than what is owed include a specific request to have the item removed from the credit report. Note that if the debt was sold from the original firm to collection company they can not get the item from the original creditor removed. Only the party that created the item can have it removed. What is ever agreed get a letter from them stating what they will do before you give them the money. Then if the item is not cleared you can go to the credit bureau to dispute the item. The credit bureau will then need to remove it as you have a letter showing that the item should not be there.

Answer 2

First, save up what you can while you are still paying off the old stuff. Then, see who there may be among your relatives who might be willing to co-sign for you. Even more, might be willing to loan you a substantial amount to use for a down payment. The larger the down payment you have, the more likely a mortgage company will take a chance on you just because the house is likely to go up in value while you hold it, and if you can't afford to keep it, they will not lose.

Granted, all this could take some time. Have you looked into the possibility of leasing a place that is on the market, so that you could be in line to buy it if you can arrange for financing, and may even persuade the former owner to help you finance it just to have the income themselves. Not necessarily "lease with an option to buy," but rather leasing from someone who is thinking they will likely sell the place before long.

Lease an income property from a senior couple, and ask them to recommend to their heirs that you get first shot at it, if it should come to that. Not the first day, of course, but once they know they can trust you.

See, the more an economic decision is made about you on the basis of who you are now, and not who you were when you screwed up bad enough to have to declare bankruptcy, or whatever the down and dirty part of your credit history is, the better it will be. So long as you are now being responsible adults, doing the best you can reasonably be expected to do, and not wasting money, eventually that character will soak in to the people near you. They will learn that you have matured, and can now be trusted.

Answer 3

You're doing the right thing IMO. A credit record usually goes back 7 years or more, so your past issues will come up, but you have shown a good track record and your credit score has increased.

Because of your past your credit score will not be top notch, or tier one usually. You will need to get a credit report and see what's on there. Go to the website for Experian or Trans union, or the other one (can't remember name). It should be cheap online or free one time a year from Experian via the mail. You can see your history and credit score online and take appropriate action.

Between now and the time you buy a home, don't apply for any more credit, no matter how large or small. Each time you apply, whether or not your receive credit, it marks against you on your credit score. Also get fraud alert on your credit history so that nobody can access it without you being informed first. You don not have to allow intermittent credit searches which also ding your score.

When you buy your home, you'll be limited to a mortgage amount that fits within your percieved budget based on available income. There are formulas for this. The biggest factor is the intrest rate of the loan and this will determine how much of a mortgage you can get. If you're settled in your employement, get the largest loan you can afford now buying the home you want hopefully and you'll be set. The real estate market will be your best friend before too long.

Answer 4

Do LOTS of research. There are many things that will make your creidt go up- maintaining the same accoutns for a long time (dont close any old accounts, dont open new ones), maintaining less than 25% of yoru limits, on time payments, etc.

Pull all 3 reports and dispute every charge off, collection, repo, etc. You might be able to get some-- even legitimate ones-- removed. It works-- trust me. Just dispute all bad items and claim they aren't yours and then wait 30 days and see what happens.

Btw, contact a mortgatge broker now. They'll look at your report and give you some great advice on what to do to be most easily approved in a year.

Answer 5

Your best bet would be to get a current copy of your credit report and make sure that all of your efforts have been properly reported. It is not uncommon, especially after a bankruptcy, for your credit report to contain errors. You can obtain your free credit report from www.ftc.gov. (I wouldn't so much worry about paying to get the scores at this time, just get the free reports).

After you have made sure the information is correct, and if you have been paying as you have said, there is a good possibility that you would qualify for traditional financing. You should try contacting your local bank to get pre-approved before buying a house.

Good luck with you home purchase!!!

Answer 6

There are options for you out there. But the only one option that I am knowledgable enough to comment on is the lease-to-own option.

In a lease to own option you find a seller, agree on a price, agree to lease the property for 2-3 years. During that time 10% (usually) goes towards your house and then after the 2-3 year window you will purchase the house for the agreed price.

You will still put down a deposit that will be non-refundable but usually the sellers who use this option will even give you up to 6 years (2 different 3 year contracts) so that you won't lose your deposit.

It isn't a common type of purchase but it is out there.

Answer 7

It takes 7. The options for someone further back in it than you are to buy thru owner financing or investors that charge a high interest which you have to refinance when your bankruptcy is over. You have to wait a certain number of years before you can re-fi if you buy now. I would just suck it up and wait until you are all clear. Keep saving so that you have a large downpayment+emergency savings, and you can get a lower note and better interest. Aim to pay off in 15 yrs rather than 30.

Answer 8

The only thing that is more important then your credit 5 years ago is how your credit score is right now. If your credit score isnt atleast in the Mid 600's you may have a hard time getting a house for a price you want.

Answer 9

Oh thing I would suggest is actually contact a mortgage company and explain that you want to do this in a year and they can pull your credit and tell you what they see, not to mention give you your credit
score

In the mean time, DO NOT buy anything like a car, get more credit, or anything else. DO not close any accounts you are paying on as that will prove your credit history has gotten better.

AND DO not get and adjustable rate mortgage. They always go up it seems....My husband's home in KY has one and it really in a pian in the butt

Answer 10

I think you have a good chance of being able to buy at this time through a reputable lender Bethy. If you have had no problems since that time then your odds are good. Most lenders will exclude that debt due to the timeframe. They look for interuption into your future earnings and ability to pay their debt and if nothing has happened since then it's a good shot.

If someone came to me to buy a home I would be optimistic about it. You might still pay a slightly higher rate than normal but it's a price you pay.