Whenever anyone requests your help in buying a home, it's important to ask questions to gauge whether this individual is in a position to purchase. The information they share helps you decipher whether they’re a likely candidate for a home loan.
The initial discussion with a potential homebuyer may reveal credit problems. Like, stop-you-in-your-tracks problems. Learning about their credit troubles can impede your motivation to take them on as a client, granted, but don't immediately count them out. The good thing about buying a house nowadays is that buyers don't need perfect credit to qualify for a mortgage, and while their credit may be in worse shape than prime candidates they might meet a lender’s minimum credit score requirement.
Here are four ways you can potentially help a bad credit homebuyer.
1. Educate yourself on credit improvement
Homeownership is a major life goal for many people, and if you go the extra mile and share your knowledge, homebuyers will appreciate your effort. Even if they're not in a position to buy now because they need to improve their credit score, they’ll remember the kindness you’ve shown. The fact that you were willing to assist despite their poor credit rating speaks volumes, and they’ll contact you when they’re ready to purchase.
Since you’re probably not a credit repair expert – we can’t all be Suze Orman, after all – you don't have to provide in-depth information on credit. But you can give potential buyers a few tips to help them realize their dream sooner. For example, encourage the development of a plan to pay off as many of their debts as possible, especially credit card debt. They should pay their credit cards and other bills on time every month. Also, clients should check their credit report for accuracy and dispute erroneous information that hurts their credit score.
2. Network and build relationships with different lenders
Although mortgage lenders offer basically the same products, every bank and credit union imposes their own minimum credit score requirement for applicants. It is possible to qualify for conventional loan with a credit score as low as 620. Yet, some banks and credit unions prefer to work with applicants who have a minimum credit score of 640 or 660.
To help bad credit clients buy a home, you should network and build relationships with different loan officers and lenders. Seek out lenders who have programs designed specifically for those with poor credit ratings. If you connect your clients with these lenders, it becomes easier for them to purchase a home.
Some lenders who work specifically with bad credit homebuyers offer portfolio loans, which are loans not sold on the secondary market. With portfolio lending, banks can choose to relax their lending requirements in certain circumstances. This can help a borrower with bad credit get a mortgage, providing he has substantial income, a sizable down payment and a cash reserve.
3. Stay in touch
Just because a client isn’t in a position to purchase a home today doesn't mean he can’t purchase in the next six or 12 months. Stay in touch with these individuals over the upcoming months or year. You shouldn’t harass them, but you can send an email or give them a call every so often to check in. Let them know that you’re still available to assist with their home search when they’re ready to move forward with a purchase. This demonstrates personal interest and keeps your name on the client’s mind. It might also get you paid – eventually.
4. Give tips on maintaining credit
If your client is able to successfully qualify for a mortgage loan and buy a property, you should offer advice and tips on how they can maintain their credit – at least up until closing.
The bank’s mortgage officer will likely give the client credit advice to ensure there aren’t any last-minute surprises prior to closing. (Which there almost always are.) But let’s be honest, some clients don’t always remember what they’ve been told. Therefore, it doesn't hurt to offer a few reminders.
Some homebuyers think a mortgage prequalification or preapproval seals the deal, but nothing is final until closing. Make sure your clients know this. Remind them of the importance of not applying for new lines of credit or loans before closing. This includes using their credit cards excessively and financing furniture for their new home. They should continue to pay their bills on time to avoid new negative items appearing on their credit reports. Any sizable purchases, whether with cash or credit, should be delayed until after closing. Additionally, remind clients to avoid changes to their employment status before closing. God’s work, yes, but you can handle it.
Bad credit can feel like a road block, but remember these tips when helping your buyer get his/her credit back on track.