Buying a home and your credit score

Q:  With today’s economic crisis, can my husband and I still purchase our first home?  Our credit is not that good.  Also my husband does have a VA home loan certificate of eligibility which we have not used yet.  My credit range is 600; I do not have my husband’s information yet.

 

--Patricia, Federal Way, Wash.

 

A:  In many ways, this may be an ideal time to buy a home.  Interest rates are historically low and home values in many, if not most, parts of the country are down.  Both of those things make buying a house more affordable and attractive.  However, lenders are substantially more interested in the credit worthiness of prospective home buyers. 

 

Your credit score is not particularly strong, so that is something that you should work on whether you buy a house or not. Please read this article for additional information in case you have credit card debt.  An immediate goal should be to bring your score up to the 680 to 700 range. How can you do that?  Check out the info on this column as well as www.myfico.com for information on how to do just that.  In short, catch up on any recent late payments and resolve charge-offs (pay off anything that's in collection status).  The next step in the right direction would be to an reduce credit balances to 50% of the max allowable balance.  For example, with a $10,000 credit limit, you should owe no more than $5,000.  And then work your way toward owing no more than 35% of the max allowable balance for an even better score.  Be sure to order a free credit report from www.annualcreditreport.com and look for and dispute any errors or negative information that does not belong to you. The cleaner your report is the better.

 

Having said all that, there is nothing that says that you can’t buy your first home and having the ability to use a VA loan will certainly help.  I would contact a lender and see what your prospects look like.  However, before you do that, sit down and make a detailed list of income, expenses, assets and liabilities to help you figure out if this is truly the right time to take this big step—homes may be more affordable, but that doesn’t necessarily mean you can afford one!