Dianne Stow
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Real-estate

5/4/2007

Credit repair takes some time before you’re able to get a loan

Q: My husband and I filed for bankruptcy and our home went into foreclosure about a year ago. We want to own another home some day and have been trying to straighten up our credit by making an effort to pay our bills on time. How long do you think this will take us? Will it be possible to obtain another mortgage with a foreclosure in our past? If we have a good down payment, would that be beneficial?

A: The question you really need to ask is not whether or not you can qualify for a mortgage. You could get a mortgage today. Instead, think about how much you want to pay for your next home loan.

Today, lenders rarely say no to anyone who applies for a mortgage, even those with a bankruptcy or foreclosure in their past. But they adjust upward the interest rate and fees for a new loan. If someone with great credit pays 6.25 percent for a 30-year fixed-rate loan with zero points, you might pay 8.25 percent with 2 points.

The not-so-good news is that while you’ve been paying your bills on time for a year, it’ll really take two to four years of on-time payments to qualify for those better, lower interest rates.

But if you get a mortgage now with a legitimate lender, it might help improve your credit history and score more rapidly. Ask the lender if it reports your on-time payments. The reporting of those on-time payments will help burnish your credit score.

You should check your credit history and score regularly. I suggest you use www.annualcreditreport.com. The credit history is free, and you’ll pay around $7 for a copy of your credit score. You’re allowed one free credit report from each of the three credit reporting bureaus each year.

If you’ve already received your three free credit histories, you can always, visit www.myfico.com.

Ilyce R. Glink’s latest book is “100 Questions Every First-Time Home Buyer Should Ask, 3rd Ed.” (Three Rivers Press, $18). If you have questions, you can call her radio show at (800) 972-8255 any Sunday, from 11 a.m. to 12 p.m. EST. You can also write to Real Estate Matters Syndicate, P.O. Box 366, Glencoe, IL 60022, or visit www.thinkglink.com.