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Dear Credible Money Coach,
I have bankruptcy on my file, but my credit score is going up. It is now 650. What should I do to be able to obtain a mortgage, if it is still possible? – Put on
Hello Don. Rebuilding your credit after bankruptcy is not an easy task, and I applaud your progress! A credit score of 650 is a fair score by FICO standards, so while your score may not yet be where you want it to be, it’s far from the worst it could be. .
It is possible to get a mortgage after bankruptcy, and it is possible to get a mortgage with a fair credit rating. Even though these factors combined can make things more difficult, it is still possible to get a mortgage when your low but rising credit score is due to bankruptcy. The caveat, however, is that the lower your score and the weaker your credit history, the more likely you are to be offered a higher mortgage interest rate than you would like.
Here are some ways to get the best mortgage deal possible.
Option 1: Give yourself more time
When it comes to negative information on your credit reports, time is the best healer. You didn’t specify when your bankruptcy happened, but it usually stays on your credit report for up to 10 years, depending on the type of bankruptcy.
If you are able to wait for bankruptcy to wipe out your credit reports and work to improve your ratings, you may find it easier to get a mortgage and do so at a favorable interest rate. .
Option 2: Work on your credit scores now
If it will take years for bankruptcy to fade from your credit reports, or if you firmly believe that it’s time to buy a home, your next best option is to spend a few months improving your credit scores as much as possible. credit.
Actions that improve credit include:
- Pay your bills on time each month, as agreed with the creditor.
- Update on all overdue accounts.
- Pay off credit card balances.
- Open a secured credit card to expand your credit account mix and build a positive payment history.
It’s important to understand that while these actions are helpful, you can’t build great credit scores overnight.
Option 3: Look for a Mortgage for Fair Credit
You can shop around for a mortgage while building your credit. However, increasing your scores first will make it easier for you. Some types of home loans have lower credit rating requirements than conventional mortgages. Here are three you might consider:
- FHA Loans — The Federal Housing Administration insures these mortgages, which are granted by private lenders. It is possible to qualify for an FHA loan with a credit score as low as 500 (although you must put down at least 10%).
- USDA Loans — If you have a low income and want to buy a home in certain rural areas, you may qualify for a USDA loan. These loans have no minimum credit score requirement.
- AV loans – If you or your spouse are veterans or active duty members, you may be eligible for a VA loan, which also has no minimum credit score requirement.
Keep in mind that while you may qualify for a federally guaranteed loan, your fair credit score and past bankruptcy may mean you’ll get a higher interest rate or less favorable terms than you might expect. would with a higher score and a clean credit history. .
One last word…
Although interest rates are rising, the current low rates make it a great time to buy a home. But if your credit scores and bankruptcy make it difficult to get a mortgage at a good rate, now might not be a good time to get a mortgage.
And it’s important to remember that bankruptcy only settles your debt (in whole or in part), it doesn’t necessarily resolve the underlying circumstances. If you’re still having financial problems, getting a mortgage will likely make your situation worse.
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About the Author: Laura Adams is a personal finance and small business expert, award-winning author and host of silver girl, a weekly audio podcast and top notch blog. She is frequently quoted in the national media and millions of readers and listeners benefit from her practical financial advice. Laura’s mission is to empower consumers to live richer lives through her work as a speaker, spokesperson and advocate. She earned an MBA from the University of Florida and lives in Vero Beach, Florida. Follow her on LauraDAdams.com, instagram, Facebook, Twitterand LinkedIn.