November 13, 2014
A reader asks, “I am in the process of trying to rebuild my credit, but am finding it difficult to acquire in my own name. I have a bankruptcy discharged in Feb 2013. I make all utility, insurance and rent payments on time or within the allotted grace period. Altho I am financially responsible, I feel it may not reflect in my credit report with few or no recent accounts reporting…”
“What length of time will impact my credit report/score with credit card usage?? …My mother recently obtained a small auto loan (on my behalf) thru a credit union to get the most affordable rate & payment option. She has me listed as co-signer, will this also report on my credit & impact my payment history & score as if I were the responsible party?? A lack of recent & steady payment history seems to be my biggest problem currently…”
Borrowers with credit issues should start by contact the FHA directly by calling them at 1-800 CALL FHA to request a referral to an FHA/HUD approved housing counselor. The housing counselor can assist with advice on credit issues, pre-purchase planning and preparation, etc.
Coming to the FHA loan process with damaged credit can be difficult because some borrowers aren’t prepared to hear that a longer wait time may be required before applying for a new loan. If you have missed any payments in the last 12 months, it’s better to wait until you have a full year of on-time payments on all financial obligations before applying.
Coming to the FHA loan process with anything less than 12 months of on-time payments can be problematic for borrowers even in the best of times. If you already have credit issues on your record, it’s even more important to have that full year of reliable, dependable payments.
A lowered debt-to-income ration will also help, as well as money saved for a larger down payment which could be attractive to a lender who is on the fence about whether or not to approve a loan application. The larger down payment is known as a compensating factor and depending on circumstances could actually be required instead of an option. Talk to a lender about your needs and your current circumstances for advice on how to proceed in cases like those mentioned in the reader question.
Do you have questions about FHA home loans? Ask us in the comments section. All comments are held for moderation.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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