Anyone can fall on hard financial times with the loss of a job or a health crisis in the family. If financial difficulties caused you to have a car repossessed in the last several years, you may be worried about how this event will affect your ability to get a mortgage. Here's a closer look at how a repossession may affect mortgage approval -- and some tips for buying the home of your dreams even with this infraction on your record.
How will the repossession affect your loan approval chances?
After the housing market crash of 2008, lenders have become more stringent in issuing mortgages. So, having a repossession on your record will make lenders more hesitant to issue you a mortgage. They're protecting their own interests. In their mind, you are less likely to pay back your mortgage loan because you did not pay that car loan several years ago.
Some lenders may automatically turn you down because of the repossession. Others may lend to you, but at a higher rate than they'd offer the average home buyer with a better credit history.
How can you get a mortgage in spite of this history?
Infractions like repossessions only remain on your credit history for seven years. So, if you're approaching this timepoint, your best bet may just be to put off buying a home for a year or two until the repossession no longer shows up.
If you would like to buy sooner, then you need to do all you can to bring your credit score up as high as possible. Pay off some of your smaller debts, like credit cards, and be absolutely certain to make all of your payments on time in the coming months.
You should also try applying to several different types of lenders. For instance, apply for a mortgage at a credit union or two, a small regional bank, and a larger corporate bank. Different lenders "weigh" different factors when determining who to lend to and what rate to offer. Often, smaller credit unions are more willing to work with borrowers with a less-than-perfect history.
When you apply for the loan, be sure to bring documents with you that show you are not as at-risk of defaulting on your loan as the repossession may suggest. For example, if your income has doubled since the time your car was repossessed, a record of this may be reassuring to your lender.
It's not impossible to get a mortgage with a vehicle repossession on your record. You may just have to work a bit harder at it! For help finding a home, contact a real estate agent in your area.