How Credit Counseling Can Help You Get A Mortgage
Your credit score is less-than-perfect, but you want to buy a house. Ever consider non-profit credit counseling services? Mortgage lenders are stricter in granting loans now — after the subprime mortgage crisis — than ever before. This is bad news for people with low credit scores. They are more likely to be rejected for loans than individuals with good credit records. Fortunately, credit counseling can get individuals with poor credit scores on the road to homeownership.
In the days after the collapse of the housing bubble, it’s extremely difficult to purchase a home with a low credit score. But instead of resigning yourself to apartment rentals for the rest of your life, you can do something about your financial life. One of those things you can do is seek out credit counseling and housing counseling. We’ll discuss that in further detail later in this blog post. But first, let’s explore the relationship between mortgages and credit counseling.
Mortgages and credit counseling –
Banks are toughening their standards for who can apply for a mortgage loan. A borrower with a good credit score is attractive to a money-lending institution. The high credit score demonstrates to a bank or other lending institution that the borrower is a low-risk individual – in other words, he or she is far less likely to miss a payment or to stop making mortgage payments altogether. Lending institutions reward these individuals by charging them much lower interest rates on loans.
Conversely, individuals with poor credit scores are considered to be risky borrowers, according to Bankrate.com. The chances that they will default on their loans are much higher. Lending institutions are much more likely to charge higher interest rates to individuals with poor credit scores to – again – insulate themselves from the shocks of financial loss stemming from loan defaults. Those higher interest rates can translate to hundreds of additional dollars in mortgage payments each month.
Saving money, in the long run, is a strong reason to clean up your credit score BEFORE you apply for a mortgage!
Housing counseling helps you prepare –
If you are considering home ownership, the first thing you should do is work to clean up your credit score. Credit counseling or online credit counseling is a great choice for a prospective homeowner with a shaky credit score. By disclosing your financial situation and typical spending habits to one of our Advantage CCS certified credit counselors, you will be able to take the most important initial steps towards repairing your credit score. The process won’t happen overnight, but through dedicated work and resolve, you will be able to raise your credit score.
There are no fast fixes to improving your financial standing, unfortunately. You can, however, take some steps – with the assistance of a credit counselor – to see where your credit score stands and exactly what you’ll need to do to repair it.
Bankrate.com states that you will need to obtain a copy of your credit report and go over it carefully to ensure that there are no errors. False delinquencies, lines of credit you don’t actually have open, and even other peoples’ credit information in your report, are conditions that can contribute to false scores.
Next, you should start paying down your debts. What’s the rationale behind this advice? Craig Watts works for Fair Isaac Corporation, the namesake of the FICO credit score. He says that using most or all of the credit loaned to you can have negative effects on your credit score. However, having a big line of credit open with no outstanding balances – only bills that are paid off faithfully every time – makes you look like a better mortgage risk. It proves to mortgage lenders that you can borrow money and pay on time, every time.
What is credit counseling –
Credit counseling can act as just the thing to bring you from renting an apartment to having your very own mortgage. Simply find a reputable non-profit credit counseling agency and they can help you resolve your credit issues. Once your debt gets paid off and your credit score increases, you can start the process of buying a home.
After you meet with your credit counselor, the two of you will come up with a payment plan that should satisfy all of your debts. At the end of the credit counseling process, your credit will get cleaned up and your credit score will allow you to get a mortgage from a traditional lender.
Can housing counseling help me get a mortgage –
The short answer? Yes, housing counseling can help you buy a home. But you should know that not all housing counseling agencies are made equal. Before you sign up with an agency, research them on the Better Business Bureau website. You should also stay away from any company that asks you to pay for their services. The only fee that you might have to pay when working with these non-profit companies are those related to what is known as a debt management plan. Not all people who work with a credit counseling company will need a debt management plan, so you will probably get to work with a counselor for free if you don’t have much debt.
Can I work with a credit counseling agency –
Before you meet your counselor, gather your credit card statements, bank statements, and other financial records. Your credit counselor will need these documents to create your debt repayment plan to help you get out of debt and raise your chances of homeownership.
You will also need to decide once and for all that you’re serious about eliminating your debt. The best debt repayment plan won’t work if you’re still using credit cards to finance extravagant purchases or eating out at restaurants three times a week.
When will I be able to buy a home –
When you work with a housing counseling agency, you will need to know that patience is key. Paying off debt is a marathon, not a sprint. If you have a low credit score, it probably happened because of financial behaviors you implemented over the years. It will take time to extricate yourself from your former way of spending. But if you follow the agency’s repayment plan faithfully, you will see positive results. Before you know it, you’ll move into your brand new home.
Many aspiring homeowners have used credit counseling agencies to make their dreams of home ownership come true. You will learn how to handle and pay off debts – and more importantly, you will learn tricks for avoiding future debts. If you want to buy a house – but your credit is less than perfect – give Advantage CCS a call today! By working with a certified credit and housing counselor, following the plan, and changing your financial habits, you too can join the ranks of American homeowners!