Some people think that lending institutions are ready to beat a path to their
doors to give them home loan options such as low interest rates or no money down
programs. That’s what advertising has been telling us for several years now.
It’s not luck or happening onto a great sale on home loans that gets a buyer no
money down deal or a good interest rate. It’s the borrower’s credit score that
determines the interest rate “deal” he or she will be offered or if the borrower
may qualify for no money down options.
No money down options and low interest rates are reserved for customers with
good credit. They get special offers because they are low-risk borrowers. Their
good credit gets them chances at no money down or low interest rate programs.
When banks issue a home loan they pull a history of the potential borrower’s
credit. Seriously late payments will show up on these reports. A person’s credit
score is based on a debt to income ratio. To put it simply, if you make too
little money and spend too much already, don’t expect to have a great credit
score or to qualify for no money down programs. Chances are when you talk with a
banker about buying the home you have in mind with no money down, he or she
might tell you that you either need to clean some debt off your credit report or
you will need to gather another property worth a significant amount of money to
offer as collateral on the house. If that’s the case, don’t expect to be able to
buy with no money down.
If you are thinking about buying a home in the future and hope to buy it
with no money down, it’s never too late to start working to improve your credit
report. The one thing you don’t want to do is check it frequently. Every time
someone runs a check on your credit report – even if it’s you – it shows up as a
credit inquiry. If you want to buy a house with no money down in the next two
years, go ahead and request a copy of your report now. There are actually three
reporting stations banks use when making loan decisions so ask your local banker
to request a copy for you. There might be a small charge, $25 or so. It’s a
small investment to make in your credit future, especially if you’re hoping to
buy a home with no money down someday. Tell your banker you hope to buy a house
with no money down in the future and he or she can give you advice on how to
improve your credit score.
Once you get a copy of your credit report, review it closely. Are there any
accounts listed that are not yours? If you are divorced, do you see accounts
from your former spouse showing up on your report? Don’t panic if you do.
If you find accounts that are not yours, contact your banker and ask how to get
the accounts removed. This happens occasionally when someone has a similar name
to yours. It’s usually cleared up easily by comparing social security numbers.
If debts owed by your former spouse are present on your credit report, don’t
worry about that either. When it comes time for you to apply for your no money
down home loan, just attach a copy of your divorce papers with your application.
The banker can use the legal document to compare what debts are legally yours
and which belong to your former spouse. Don’t ignore the incorrect items – they
might keep you from buying your dream home with no money down.
Knowing that getting a no money down deal or a good interest rate on a home
loan is dependent on a good credit score is half the battle. When you know this
fact up front, you can start primping your credit report so that it begins to
look better, setting yourself up for lower interest rates or no money down
programs.
