First Time Home Buyers: The Credit Conversation and a Confidence Conundrum

Undoubtedly, one of the first concerns of a first time buyer is their credit. What I see in a lot of first timers is merely a confidence issue. Like I said, this starts with credit but permeates every aspect of the loan process. Much like any good team, confidence in each other is really the fuel that fires success. I have this conversation with all of my first time buyers. If you don’t believe in me, don’t use me. The same way that if I don’t believe in you, I won’t work for you. Especially in this foreclosure driven market, you can’t go half-hearted into a trying transaction. What makes so many first time buyers lack confidence in their credit?

They have only had a few opportunities to get credit. Most potential first time home buyers that don’t get approved, simply have never had any credit. An old collection from Sprint, will not get it done. However, if you have an auto loan or a credit card (preferably both) we are in business. I know it may not seem like much, but it works. Understand that you are at a disadvantage simply because you have had less time, but if you have repaid a debt on time, be confident that you are building credit up…not letting it slip away. If you have been denied in the past, it is likely a lack of other references. This is not as bad when applying for a mortgage as it is when applying for a credit card.

Apply now, Free Money….with crippling fees. When young people get young people credit, it normally comes with high annual fees, application fees, fee fees. This normally leads to a charge off and hit to your score. The main thing is- did you ever get credit after that? The more recent the credit, the more it counts. If you have a blemish, don’t freak out. If you have gotten any new credit after the blemish, a good payment history on the new account will wash out and hopefully overcome the blemish.

So close yet, so far. So what if you are close but can’t seem to get approved? If you are within a few points of being able to get a loan, you may need to just wait a month until some of the inquiries on your credit cease to affect you so heavily. When you apply for a loan, someone pulls your credit. If you are young and trying to obtain credit over a few months, then you have had several people pull your credit, probably multiple times for each time you actually applied for credit. This is the type of thing that can take a 620 FICO (easily qualified) to a 599 FICO (extremely hard to qualify). See, all these applications for credit look to a bank as if you are looking to overextend yourself. You are a much bigger risk if you are applying for a lot of credit very quickly, whether you obtain it or not. However, if you wait a month or two to calm this effect you should be fine.

Any final words? The best thing to do is to seek a good loan officer that that can guide you through this process and who is willing to work with you to get you into a home or into a position to buy a home.

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