Homeownership is a dream for many, but for those with low credit scores, it can feel like an elusive goal. However, I'm here to tell you that it is absolutely possible to turn that dream into a reality. Will it require you to be uncomfortable and change some things? Yes.  It comes down to this question, how much are you willing to change for the dream of home ownership?  If you don't want to change, stop reading.  If you do, then keep reading to find some important information on turning your challenge into your dream.

First, it's essential to understand what a credit score is and how it works. Your credit score is a three-digit number that reflects your creditworthiness. It’s based on your credit history, including your payment history, how much debt you owe, the length of your credit history, types of credit used, and recent credit inquiries. 

One of the most important steps in turning your low credit score around is understanding the factors that contribute to it. Start by pulling your free credit report from the three major credit bureaus: Experian, TransUnion, and Equifax.  Just google free credit report and you can get a great idea about where you are at.

Next, pay attention to your payment history. Late payments can have a significant negative impact on your credit score. If you have missed payments, focus on getting current with your bills. Set up reminders or automate payments to avoid future late payments. Additionally, if you have accounts in collections, contact those creditors to discuss repayment options or settlement agreements.  After over a decade in mortgage lending, late payments are the most likely reason why your credit is low.  STOP making late payments and watch your credit score go up.

Another factor that can affect your credit score is your credit utilization ratio. This is the one factor that the average client does not know about.  This is the amount of credit you're using compared to your total available credit. Ideally, you should keep your credit utilization below 30%. For example, if your credit limit is $10,000, 30% of that is $3,000.  Keep your credit card balance BELOW $3,000 if possible.  If it's higher, work on paying down your balances. Even small payments can make a difference over time. If possible, consider asking for a credit limit increase on existing accounts, as this can help lower your utilization ratio without additional spending.

Building a positive credit history is also crucial. If you don’t have much credit history, consider applying for a secured credit card. These cards require a cash deposit as collateral, and they can help you establish or rebuild your credit. Make small purchases and pay off the balance each month to demonstrate responsible credit use. Over time, this can help boost your credit score and improve your chances of qualifying for a mortgage.  Google "credit cards for people with no credit" and apply.  Easy as that.

If you are really committed to buying a property, a next step is exploring the various mortgage options available specifically for those with lower credit scores. While traditional loans may have strict credit requirements, there are programs designed to help individuals with less-than-perfect credit. For example, FHA loans are backed by the Federal Housing Administration and are known for their more lenient credit requirements. These loans often allow for lower down payments and are a great option for first-time homebuyers. 

Additionally, some lenders offer specialized programs that cater to buyers with low credit scores. These programs may provide more flexible qualification criteria, making it easier for you to secure financing. It’s important to have a conversation with a mortgage loan officer—like myself—who can guide you through your specific options based on your situation and financial goals.  Also, I will be the first to tell you that it may not be a great time to buy and offer my help to INCREASE your credit to help you qualify for different programs.

If do recommend not buying right now, you might also want to consider working with credit counseling services. These organizations can help you understand your credit and create a plan to improve it. They can assist with budgeting, debt management, and financial education, empowering you to make informed decisions that positively impact your credit score.

It’s important to remain realistic and patient as you work towards improving your credit score. This process takes time, but every small step you take is a step closer to homeownership. Celebrate your progress, no matter how small, and keep your goal in sight.

Once you feel that you have improved your credit score and have a better handle on your financial situation, it’s time to get pre-approved for a mortgage. This process involves submitting financial documentation to a lender, who will then assess your creditworthiness and determine how much you can borrow. Getting pre-approved not only gives you an idea of your budget but also shows sellers that you are a serious buyer. It can give you a competitive edge in the housing market.

Turning low credit scores into homeownership dreams is entirely achievable with the right approach and guidance. As I began this blog, it will require change and being a little uncomfortable.  You can do it, if you want it bad enough!  Let’s work together to make your homeownership dreams a reality!