Credit scores are an important part of qualifying for a home loan because they signal how likely you are to repay your loan.
Unfortunately, there are times when life circumstances can negatively affect your finances and even decrease your credit scores. When this happens, it’s easy to feel deflated about your financial prospects. You may even think your goals of homeownership are no longer attainable.
Often, that's just not the case.
Despite past credit challenges, you may still be able to obtain home financing at a reasonable rate. Here are a few credit misconceptions we can debunk:
- “I had to foreclose on my home, so I won’t qualify for financing.” – The truth is, you may be able to qualify for a new mortgage in as little as three years after a foreclosure, depending on the loan type. If you can qualify for a VA loan, you may be eligible for financing in as little as two years after a foreclosure.
- “I filed for bankruptcy, so I can’t get a home loan.” – Obtaining a mortgage after filing for bankruptcy depends on the type of bankruptcy you filed (chapter 7 vs. chapter 13), and the type of loan you want. In some cases, you may be eligible for financing as early as two years after your discharge date.
- “My credit score is too low to qualify for home financing.” – Whether you are looking to purchase a home or you are interested in refinancing, there are companies who can work with your weakened credit history to help you find a loan product that will work for your unique circumstances.
- “You should close all your credit accounts before applying for a mortgage.” — One of the factors that impacts your credit is age of credit, meaning how long you have had open accounts. It’s generally best to keep open accounts open, even if they don’t have a balance. This will keep your payment history intact and show a strong history of using credit wisely.
- “Credit inquiries can hurt your score, so you shouldn’t shop with different lenders.” — While it is true that opening new accounts and having a lot of hard credit inquiries can hurt your score, shopping for loans won’t have a negative effect as long as you do all your shopping at about the same time.
Remember, every person’s situation is different and the best thing you can do when wondering about your home financing options is to find a professional you trust to help walk you through your options.