Home Buying Credit Myths
There are many myths and misconceptions about a person’s credit and how it affects their ability to purchase a home. Advice from friends and family is not always correct and it deters qualified buyers from purchasing a home.
Myth #1: You need to have spotless credit to qualify for a loan
There are actually loan programs out there that do not rely on credit, sometimes the lender looks at a borrowers 12 month history to ensure that all credit obligations are paid on time. There are also programs where less than perfect credit is ok like the FHA program. FHA requires at least a 580 FICO score with 3.5% down but FHA does make exceptions when a borrower has more than 10% to put down since they can get approved with a score lower than 580 FICO. This allows the potential buyer to weigh the advantages and disadvantages of putting a larger down payment on a house or increasing their credit to qualify for a smaller down payment loan.
Myth #2: Lenders can share your personal credit information with anyone
This is mostly false. There are many federal and state privacy laws to ensure someone’s personal information stays confidential. The lenders typically must first get your permission to share any information with an affiliate (any company which makes, holds, or invests credit extensions or bank loans.)
Myth #3: Lenders only use FICO scoring to determine creditworthiness
There are different credit-scoring models out there so the lender may not be using FICO. VantageScore is a common model used for determining a buyer’s credit worthiness.
Myth #4: You can never buy a home after a foreclosure or short sale
If you have a foreclosure on your record you will not be able to purchase a home for 7 years but if you participate in a short sale, you may qualify for a loan to purchase a home only 1 year later! That is why short sales have become extremely popular with homeowners that are facing foreclosure. It is important to work with a reputable real estate solutions company that understands the short process if considering a short sale.
Myth #5: Rent-to-own programs do not work
Rent-to-own programs do indeed work and they are fantastic for people with damaged credit. A rent to own program allows a homeowner to live IN a home that they interested in purchasing while renting for a few months. The key part to this is that the landlord should record the lease with the county. If they record the lease than a history of payments will be recorded for the lender. The renter who wishes to become a homeowner should also be working with a credit repair company so that they will qualify for a mortgage loan a few months to a year after moving in.
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