The burst of the housing “bubble” has caused many a change in the housing and mortgage market. Many of the first time buyers are now skeptical about their chances of getting a home loan in this depressed economy, even though they possess good credit scores. Here’s what one such first time buyer has described about his situation and asked the community whether he stands a chance to qualify for a mortgage:

The poster says the 3 credit bureaus list his credit scores as 682, 686 and 639. He has worked hard to improve his credit, which now has 2 derogatory items listed. One of them is a collection since 6/04, while the other is a charge-off on an auto loan since 8/06. The poster has an income of $25,500/year. He asks the following queries:

1. Do I have a chance to qualify for a loan?
2. What interest rate can I expect on the loan?
3. Which is the best bank to get my loan from?
4. Do I qualify for any first time buyer program that does not require a down payment

The poster does have a chance to qualify for a home loan. His credit scores are good enough to help him meet the lender-specified credit requirements for a mortgage. However, the only problems with his credit are the 2 derogatory items – the charge-off and the collection. No lender would want to get him approved for a loan until the two negative items are removed from the credit report.

How do you remove negative items from credit?

The poster owes a total of $19k on the collection and the charge-off. So, does this mean he cannot qualify for a loan unless he comes up with $19k cash? Not necessarily. If he does not have the cash to pay off the debts, he can try and set up a repayment plan to pay off the negative items. He can pay off the debts through monthly payments. But if he sets up a repayment plan to pay off those 2 items today, will he be able to get a loan tomorrow? Well, the answer would be “no”. The lender would want to check if he has lived up to the terms of the repayment agreement.
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