Buying a home with blemished credit isn't the impossible dream. There are ways you can market yourself to look like a more attractive buyer -- it just takes time and effort.
Clear skies with partly cloudy credit
You can take several steps to straighten out your credit. Devise a budget and live within it. Also, make sure your credit file is accurate and add positive information to it, such as information on accounts you pay on time. Send credit bureaus a copy of recent account statements and copies of canceled checks showing your payment history. Also send them documentation showing steady employment, long-term residence and checking and savings accounts.
Evening the odds with credit scoring
If you have an especially shaky credit report, don't panic. Credit scoring, a little-known process in which a lender tallies up your current credit status according to a formula unique to that lender, can help someone with a bankruptcy or foreclosure get a mortgage because it's an objective evaluation method that eliminates an individual loan underwriter's bias.
Improving your ratios
What can you do if the ratios lenders use to calculate your creditworthiness are low and you can't qualify for a large enough mortgage to buy a suitable home? One option is to go to a portfolio lender that doesn't sell loans to investors. These lenders have flexibility in approving borrowers; they can make exceptions, if they want to, for borrowers whose ratios deviate from the guidelines. Some portfolio lenders will go as high as 38 percent on a front-end ratio; some will go higher. Often lenders will approve a loan with a high front-end ratio if the borrowers have no other outstanding debts or if they make a large cash down payment.
You're entering the comfort zone
What you can qualify for may not be what you feel comfortable paying per month for your housing expense. It doesn't make sense to stretch beyond your comfort level if you're on a fixed income, if future salary increases are uncertain, or if it will cause you to lose sleep at night.
Spruce up your credit first
If you decide to use a home equity line to finance home improvements, make sure that you are pre-approved for this before you complete the purchase. You will need excellent credit to get 100 percent financing using an equity line.