Getting a Mortgage After Clearing Up Credit - How Long to Wait

Reader Question: How long should you wait after you clear up your bad credit to get a mortgage loan?

That depends on what you mean by clearing up your bad credit. Here's what I mean:

• If you mean that you've fixed some problems that were hurting your credit score, but you're score hasn't yet improved dramatically ... then you might want to wait until you see an increase in the score.
• If you mean that you've already seen an improvement in your credit score, then it might be a good time to apply for a mortgage. Or you could wait a while to see if your score goes up even more.

It all comes down to this. The better your credit score, the easier time you'll have getting approved for a loan. A higher score will also qualify you for a better interest rate on the loan. And that means a smaller mortgage payment each month!

You could probably qualify for a home loan in this economy with a score in the 650+ range. But to get the best interest rate a mortgage lender has to offer, you'll probably need something north of 720. Getting qualified for a loan is your first hurdle. Once you clear that, it comes down to the interest rate the lender is willing to offer, and whether or not that makes the loan affordable for you.

Mortgage Qualification - Beyond Credit Scores

It's also worth mentioning that a mortgage lender will look at other things, beyond your credit score. You also need a favorable debt-to-income ratio in order to qualify. And most lenders today are requiring a down payment, the closer to 20% the better.

Hope that helps. Good luck to you in 2009.