How to Fix Your Credit to Buy a House

Buying a house is an exciting milestone in life. However poor credit can derail your homebuying dreams. Good news: there are things you can do to fix your credit and make it easier for you to get a mortgage. It’s possible to fix your credit and buy a house if you work hard at it.

Why Credit Matters for Buying a House

Lenders will carefully look at your credit history when you apply for a mortgage. They do this to figure out how risky it is for them to lend you money. In general, the higher your credit score, the more likely it is that you will be approved for a mortgage and get good rates and terms.

Here are some key reasons why credit counts when buying a home:

• Mortgage approval: Many lenders require a minimum credit score between 620-640 to qualify for a conventional loan. Govenment-backed loans like FHA and USDA have lower score requirements. But the better your credit, the more likely you’ll get approved.

• Interest rates: The higher your credit score, the lower the interest rate lenders will likely offer on your mortgage. Even small differences in rates can equal thousands of dollars over the life of your loan.

• Loan terms: Lenders provide better terms to lower-risk borrowers. If you have good credit, you might be able to get better loan types, lower mortgage insurance rates, or smaller down payments.

• Overall costs: In addition to the mortgage rate, your credit can impact lender fees and closing costs. Improving your credit profile makes it more likely you’ll get the best deals.

In the end, having good credit helps you save money when you buy a house. That’s why it pays to fix your credit first.

How Long It Takes to Improve Your Credit

Exactly how long it takes to improve your credit score can vary depending on your individual situation and how many points you need to raise it. However, if you’re disciplined, you can make significant strides in less than a year.

Here is a realistic timeline for credit repair to buy a house:

• 1-3 months: Resolve errors, get current on payments, pay down balances.
• 3-6 months: Credit scores start improving as positive changes post.
• 6-12 months: Credit profile stabilizes in “good” range to qualify for mortgage.

The strategies outlined below aim to increase your credit scores within a 6 to 12 month timeframe. But start implementing them as soon as possible, and maintain diligence until you close on your home.

8 Ways to Fix Your Credit to Buy a House

If you want to buy a house soon, here are some proven techniques for improving your credit scores:

1. Check Your Credit Reports

Start by pulling your credit reports from AnnualCreditReport.com. Review all accounts and entries for any inaccuracies that may be hurting your scores. If you find errors, file disputes immediately to get them corrected.

2. Pay Down Credit Card Balances

Aim to get your credit card balances below 10% of your available credit limits. Lower balances help reduce your credit utilization ratio.

3. Become an On-Time Payment Pro

Payment history is a major factor in your credit scores. Set up automatic payments and email reminders to avoid late payments. Even one missed payment can hurt.

4. Don’t Close Old Credit Accounts

Keep open your old credit cards and loans in good standing. This preserves the length of your positive credit history.

5. Hold Off On New Credit Applications

New credit inquiries and accounts can lower your scores temporarily. Avoid applying for financing until after you close on your home.

6. Ask for Credit Limit Increases

Higher credit limits can help lower your credit utilization. Just be sure to keep balances low when requesting more credit.

7. Enroll in Credit Monitoring

Ongoing credit monitoring lets you catch any reporting errors or suspicious activity right away so you can address issues before they do major damage.

8. Practice Good Credit Hygiene

Get in the habit of monitoring scores, minimizing balances, and making on-time payments. Good financial habits will keep your credit scores up.

Alternative Credit Options for Homebuyers

If your credit needs more time to improve, you may still qualify for a mortgage by exploring alternative options:

• FHA loans only require a 580 credit score with a 3.5% down payment. Or a 500 score with 10% down.

• VA loans don’t have set credit score requirements. The lender sets their own standards. No down payment needed.

• USDA loans are available to buyers in rural areas with a 640 credit score. 100% financing means no down payment.

• Subprime lenders offer credit improvement mortgages, but interest rates are higher.

• FHA 203(k) loans let you finance home repairs to make the property livable along with your purchase.

• Manual underwriting looks at your full financial picture, not just credit scores. Extra documentation is required.

• Fairway Independent Mortgage is a national lender that underwrites loans with credit of 580 and above.

Talk to a mortgage professional to discuss options that may work for your situation.

Tips for Maintaining Good Credit After Buying a House

Once you’ve purchased your home, protecting your credit should remain a priority:

• Continue monitoring credit reports/scores.
• Keep balances low on credit cards and other debts.
• Make at least the minimum monthly payments on time.
• Consider enrolling in automatic payment options.
• Don’t open too many new credit accounts right away.
• Use credit responsibly and avoid late payments.
• Contact your servicer immediately if you anticipate payment issues.
• Explore loan modification or refinancing if payments become unaffordable.

Owning a home is a big responsibility. Handling it properly helps ensure your credit stays in good shape.

Let a Mortgage Expert Help

Repairing your credit takes time and diligent effort. But it’s worth it to make homeownership possible. If you need guidance on improving your credit score to buy a house, let a knowledgeable mortgage professional help.