My husband and I have recently started working at new jobs that pay very well. We want to buy a house soon. However, our credit needs some repairing. We are focusing on paying off all our credit cards, but we were wondering how long does it take after we do this before we would be able to apply for a loan for a home?
We have several credit cards that were in collection and we are working with them to pay them off. Yet, I am afraid that this will stay with us for some time.
Our jobs make it possible for us to make house payments as well, but we are afraid that lenders will see our credit report and deny our loan application. I have heard that whenever you apply for a loan and a lender inquires about your credit, your credit score is affected. Is this true? For this reason we are hesitant to even look.
We have worked very hard to get to this point in our lives. We are trying to fix the damage we have done to our credit in the past. But we are concerned that it will have repercussions much later than we expected.
I understand that regulations have changed and getting loans is not as easy as it used to be. I fear we would be considered a risk that many lenders would not want to take. We are anxious to buy a home, but do not want to start the process only to learn that we do not qualify because of our credit history.
How long should we wait before we start the process of buying a home?
===ANSWERS===
Hello Karen;
Thank you so much for sharing your story with us here in this community. I will try and address your concerns the best I can. Sharing them here will help not just you but others because often times I find many people with the same situations.
First off, you mention you just recently started working jobs that pay well. Hopefully you do not have more than a 2 month gap in employment for both of you. If you both have been working for at least 2 years, even if you changed jobs recently that pay you more money, this is a good thing.
If you have numerous collections on credit cards that you are paying off, it may take a few years before the lender will consider you a good risk. They like to see 24 months of on time payments. They prefer collections to be paid off, although there may be an exception with FHA. When we have derogs (as they call them in the industry) on a credit report, it normally tales up to 7 years for them to fall off your report.
While it is true that when a lender pulls a credit report on you it lowers your score just a bit, do not worry to much here. Keep an eye on your report by requesting a free copy of it one time each year. As you see your credit scores improving, you'll know when it's time to apply for a mortgage.
So in summary, I would say that if you have about 24 months of on time payments to your credit cards, all collections are paid off, two years of steady employment and a credit score of at least 580, you may consider then to apply for a FHA mortgage.
Thank you for the detailed answer to these questions. Sometimes it is hard to know what to do first when you want to buy a home. Now I know I need to be sure to pay my bills on time so I can have a history of on time payments for a period of time. I get focused on this now.
Understanding how credit scores work is the beginning of the mortgage process. Know your credit scores before you apply for a mortgage. Many free details found on this page.
