Like many working class American people today, I am currently in the market to buy my first house. I can afford a decent house, although the amount that I can actually afford to spend each month on a mortgage brings my buying price slightly below the average in the area I am looking at. But, I am the eternal optimist and believe that if I do whatever necessary, I will be in a new house (new to me, at least) within the next 3-4 months.
The downside, when I started, my credit was oh-so-less-than-perfect. I had credit cards from when I was in college and not working, and some from when I was in the middle of a divorce and jobless and unable to make my monthly payments, plus those ghastly medical bills that appear out of no where because I had insurance that should have taken care of everything minus my co-payment. Trust me, all of these things amount to a low credit score. Not to mention, not understanding all of this, and applying for credit, even when I was pretty sure that it wouldn't be granted, yes those inquiries really do bring down your credit score.
Thankfully, I recently found a company who seems interested in helping me. So, back when I first gott in contact with my mortgage consultant, he pulled my credit and sent me a copy so that I could see what was being reported to all three credit reporting agencies. That allowed me the ability to see what I needed to fix and dispute. I made a list of all of my collection accounts, amounts, and what/when I thought I could pay them.
This fueled the fire to my quest. My quest was to get as much of the negative items off of my credit report as possible. I went to all three websites and just disputed EVERYTHING. Even if I thought or knew it to be valid as belonging to me. Thankfully, I got results in that 80% of the negative items either deleted or status changed to show all payments were received on time. Once everything was in, and it went to the underwriters, the only issue they had were my collection accounts that were non-medical. With the items being deleted or paid, it brought my credit above what it needed to be in order to get approved for a FHA mortgage.
Now onto the hunt for the perfect house. So, just remember, do not despair, and think positively. I was able to go from too low to even be considered to mortgage worthy in a little over a month. You just have to put your mind to it, and look for the right lender who is willing to take what you have to offer. They are in the business of wanting your money, they aren't making money if they don't get mortgages approved. So, dispute everything and pay off any remaining collection bills. If you are going for an FHA mortgage, pay your non-medical collections and keep your receipts that show they are paid in full, just in case they aren't updated on your credit report!
In the end, you may have a smaller down payment, but as long as you have at least 3.5% then you should be in business.