Aug
20
2013

Vehicle repossession can prevent approval for a mortgage loan

Dear Experian,

Can a vehicle repossession affect your credit bad enough to prevent you from being able to purchase a new home?

- SHA

 

Dear SHA,

Yes, particularly in today’s mortgage market.

A car is repossessed because the borrower couldn’t or simply didn’t repay the debt. Because of the recent subprime mortgage crisis, any credit repayment problems will weigh heavily on a person’s ability to get a mortgage. Missing car payments or having the car repossessed is particularly significant because cars are a necessity for most people.

The question on a lender’s mind will be, “If you can’t repay a car loan, why do you think you can repay a home loan?”

Your situation may be different, but in my experience, people who are having a car repossessed also are having trouble managing their other debts. They have high credit card balances, outstanding loans for other items such as furniture, or even other cars, or may have had medical issues recently and so are not in a good financial situation.

Mortgage lenders now are much more stringent in their lending standards. So having any debt problems can make it more difficult to qualify for a mortgage loan. Before you apply, take steps to make sure your finances are in order.

Repay any remaining debt after the repossession. The lender will sell your car, but you still are responsible for any remaining debt that the proceeds from the sale do not cover.

In the meantime, get a copy of your credit report and purchase a credit score. The credit score will give you a good idea of where you stand in terms of creditworthiness. The score will come with a report that explains what from your credit history most influenced the score.

Use the information to establish a plan for improving your creditworthiness. That may be reducing your credit card balances, bringing late payments current, or simply waiting for past negative information to be deleted.

Your goals depend on your unique credit history. Whatever the issues, time will be an important factor. Begin taking steps to get control of your debts now, save money to make a significant down payment, and eventually you will be able to qualify for a home loan.

Thanks for asking.

- The “Ask Experian” team

  • ©2014 Experian Information Solutions, Inc. All rights reserved.