Can You Buy a House when Seven Year Debts are Clear?

Posted: April 30th, 2012 | Author: | Filed under: Uncategorized | No Comments »

…by Anthony Buono

You are past the seven-year mark, and all the debts that are negative have been removed from your credit report. Can you buy a house now that your credit report looks good? Or will those old debts come back to haunt you?

There is more than one way to get a clear credit report. Outliving your debts is one of them. But there is more to homeownership than outliving your debts. Before you decide to buy a home be sure you have committed to a change in thinking and habits. Namely by saving for a down payment or having an emergency fund. These two things at least need to be in place before you buy a house.

If you have had negative items on your credit report, then there have been some issues with managing your finances in the past. Be sure you are on sound financial footing. Your monthly mortgage payment doesn't include routine maintenance issues that come with owning a home. You also need to factor in home insurance and property taxes. Check out a mortgage calculator to help determine how much house you can afford.

Generally, your total debt, including your new mortgage loan, shouldn't exceed 40% of your gross income. Total debt may include a car loan, credit cards (minimum payment amounts), student loans and any other installment or revolving credit accounts.

You should also find out exactly what your credit will look like to potential mortgage lenders. To do that, get copies of your credit reports from all three of the major credit bureaus. If you find any errors or out-of-date negative items, dispute them with the bureaus that reported the incorrect information.

Every time a mortgage lender inquires about your credit, it lowers your score unless you do your loan shopping in a short period of time. So choose one or two local banks, and bring them your credit reports. They can let you know in general terms what type of mortgage loan at what terms you would qualify for. This way, the lender wouldn't cause a credit inquiry on your credit file.

Lastly, although those old debts may no longer affect your ability to buy a home, they may still have debt collectors calling to collect. Most of the debt may be past the statute of limitations, but some may not be past the expiration date.
If you need home buying or credit counseling advice, contact the Law Office of Black and Buono.

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