While it’s unlikely that you will get approved for a $400,000 mortgage with a 500 credit score, you may have options if you’re looking to purchase a new home with less than perfect credit. More and more private lenders are focusing on things other than FICO score to determine eligibility for a home loan. Claiming that fewer millennials are actually using credit cards and pointing to the widespread medical and student loan debt that is negatively impacting scores, many lenders say that your “number” may not tell the whole story about your suitability to borrow and manage money. Some of the things they’re examining include:
Liquidity and Income
It’s more important that you’re able to demonstrate a cumulative pattern of savings and financial responsibility than anything else. If you can produce bank statements that illustrate that you’ve been saving and are fully committed to the responsibility of homeownership, an outstanding medical bill may not be so much of an issue.
Rent Payment History
What better way to determine if someone is able to pay for their property than asking those to whom they’ve paid rent? First-time homebuyers who have lived with their parents (an increasingly larger group) may have a hard time with this one; however, those who have are able to obtain some positive references from their previous landlords may have a leg up with some lenders.
Recent Delinquent Debt
It’s one thing to forgive an ages-old medical or credit debt that even the collection agencies have forgotten about; it’s another to get yourself jammed up in the exact same situation within a year of looking to buy a home. The bottom line is, and has always been, this: stay on top of your bills and only borrow what you can manage to pay back.
The whole is greater than the sum of its parts. For many lenders, it’s the big picture that counts more than any single determining factor. Before exploring any private or alternative loan options, be sure to enlist the help of an experienced real estate attorney.
Joel R. Spivack, Esq. has helped numerous clients looking to buy and sell their homes. Contact him today so we can help guide you through the real estate transaction process.