Even with New Rules, Seniors Might Need to Repair Credit to Move

One thing that many older Americans do at various points in their later years as a means of simplifying and simultaneously improving their financial standings is downsize their homes. However, because of the shape of the national housing market these days, those hoping to do so may occasionally have to take on mortgages.

In the past, this has not always been easy because mortgage lenders have been extremely tight with their credit restrictions. The housing market was one of the parts of the economy that took the hardest hit during the recent recession — in fact, it started part of the downturn — and during that time, millions of Americans fell behind on their home loan payments, and in many cases the problem got so bad that their homes fell into foreclosure. Lenders, eager to avoid this kind of problem again, made it far more difficult for consumers to get home loans.

Now, though, they’re relaxing their restrictions once again, and a new rule from the mortgage-backing giants Fannie Mae and Freddie Mac will make it easier for those who have retired to qualify for such loans. In addition to looking at your credit standing, mortgage lenders also tend to take a close look at your finances, but the new rule allows them to consider retirement accounts (such as that from Social Security, investments, and pension payouts) when they look at income overall. However, just because restrictions are looser now than they were before, that doesn’t mean banks are all that lax, and as a consequence, you may still need to take some steps to fix your credit and get back to an acceptable level before applying.

How can you begin?

The first thing you should always do when you’re looking to improve your credit score overall so that you can obtain a mortgage, before anything else, is to make sure any late payments you’ve made are put in the rearview mirror as quickly as possible. This makes up the single biggest part of your score at 35 percent and depending on the terms of your lending agreements, missing by even one day may be enough to trigger a late payment reported on your credit. Unfortunately, there’s no way to get this cleared from your reports, but by making repeated on-time payments across all accounts for a period of several months or more, you can show that your missteps were merely one-time occurrences that you won’t be repeating.

However, another thing that is growing increasingly common among retirees, and which would have a major impact on your credit standing (as well as another major factor that mortgage lenders consider, known as debt-to-income ratio) is the size of your credit card balances when viewed in comparison with your total overall limits. The unfortunate reality for many older people is that the recession took a serious toll on their finances, and to make ends meet, many had to spend more than they might have wanted on their credit cards. Consequently, their balances likely grew to sizes that were unmanageable, and as such, they likely have a lot of work to do to get their finances and credit repaired to the point where lenders will be willing to grant you a mortgage.

What’s the next step?

Once you’ve improved your credit situation by cutting out late payments and reducing your debt, either down to minimal levels or altogether, you might now be in a better position to qualify for the home loan you want particularly because you might be able to put more money into a down payment with a few extra months of diligent saving. Of course, if you’re downsizing your home, you’ll probably have substantial funds to put toward such a payment in the first place, but having a little added flexibility could serve you well, or at least allow you to better cover your closing costs and the like.

In general, the better your credit standing and the larger your down payment, the better the terms you will typically be able to receive on your mortgage overall. That, in turn, could give you greater financial flexibility to cover other costs that you might encounter in your daily life once you move into your new, smaller home. Further, with fewer credit card debts, you’ll also have to put less money toward those balances every month, which similarly could be a boon for your financial standing.

When you’re trying to see where you stand financially, and with relation to your credit, you should always take the time to order copies of your credit reports at least once per year. Doing so may also help you to discover whether any unfair markings are dragging down your scores unduly. If you find any such markings on these documents, contacting a credit repair company about the issue may help you clear it up quickly.

Posted in Credit Repair
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