Your divorce may influence your credit score, however, it is just not a reason to stop you from applying for a personal loan for a down payment or closing costs for your future home. Yes, your credit score suffered, but now banks do not care about your history, they are only interested in the present state of your finances.
First of all, you need a financial autopsy, which means requesting your credit report from Equifax, Experian, and TransUnion, checking whether there are still some joint accounts, the existence of which may greatly damage your score.
After the divorce, the debt-to-income ratio becomes the most important thing for a lender, since they need to see that your monthly payments for your debts do not exceed 43% of your gross monthly income. So, it is wise to calculate the ratio on your own before your visit to the lender – it will give you the advantage in negotiation.
Showing your stable income becomes your main task, so collect the information concerning your last two years’ tax returns, current pay stubs, and orders for alimony or child support. The lender may count the support payments as additional source of your income if it is confirmed that you will receive it for at least three years. This paperwork will make you a strong candidate.
You should go to many banks like crazy since you are going to purchase a new property. Credit unions are more likely to offer more favorable terms than national banks, like Chase or Bank of America. Some online lenders may provide you a loan faster than traditional ones, however, be careful with them since their terms may turn out to be traps. Pre-approval (that means soft credit check) allows you to compare terms of various offers without lowering your credit score.
Having a bigger down payment may make the process of getting a loan easier for you, since it reduces the amount of money you need and shows your intention to pay back the loan, thus, it lowers the risk for the lender. Maybe you should consider buying a less expensive home and getting more savings for down payment.
In some cases you might need a co-signer to apply for a mortgage. In case you cannot pay back the loan alone, the co-signer with good credit score will pay your debts. However, remember that in such case your co-signer’s score will be also damaged and it should be a serious decision for you.
Sometimes it may be useful to wait some time before taking a mortgage since your credit score needs some time to improve. In this time you can prepare all your documents and gather some money for down payment, which will help you to save on interests for the whole term of your loan.
Frankly, our financial system is not very fair, however, that does not mean that you will not get what you need. Gather your documents and know your numbers. Walk to the lender with confidence – your next chapter starts now.