There are lots of questions about how the FHA home loan process works, but among the most common are on the subject of credit, and how you qualify for a home loan with your credit scores and credit history. Here are some of the most frequently asked questions about home loans and credit.
What FICO Scores Are Able To Qualify For An FHA Home Loan?
There are two standards; FHA loan minimum requirements and the lender’s individual FICO score rules. FHA minimums are NOT the same as your lender’s standards; the FHA FICO scores are the minimum required to be approved.
FHA loan rules say borrowers with FICO scores between 500 and 579 technically qualify for an FHA mortgage, but at a higher down payment than those who qualify for the lowest down payment possible with FICO scores of 580 or above.
Ask your loan officer what that financial institution’s FICO requirements are above the FHA loan minimums.
Do I Need Perfect Credit To Qualify For An FHA Mortgage?
No. FHA loan standards are more forgiving, and you may be able to apply for a new mortgage even if you have bankruptcy or a foreclosure on your credit history. A minimum waiting period since the time of the bankruptcy or foreclosure will be required, anywhere from one to three years depending on the nature of your procedure, state law, and lender standards.
Can I Apply For A Home Loan At The Same Time I Apply For A Car Loan Or College Loan?
It is generally advisable not to apply for other credit during the time you are applying for and being approved for an FHA mortgage loan.
This advice extends to store cards, gas cards, and any other type of application that requires a “hard inquiry” into your credit.
Adding any more potential debt to your debt-to-income ratio in the time leading up to your home loan application paperwork is a bad idea. Your lender’s standards may vary in this area but in general you shouldn’t give your loan officer a reason to question the approval of your loan with the idea that your debt ratio might be changing thanks to new lines of credit.
What Should I Do To Prepare For My Home Loan Credit Check?
Make on-time payments on all financial responsibilities for a full year before applying for the new loan.
Reduce your credit card balances and try not to carry more than 50% of the limit or more. Some sources report 30% of the limit is ideal but 50% is a good goal to begin with.
You should pull copies of your credit report, reduce the amount of outgoing debt versus your income, and resist the temptation to cancel your credit cards once you have gotten close to your financial goals-the age of your credit accounts can help with FICO scores as well as carrying lower balances, etc.
If you find out dated information or errors on your credit report, you will need time to contest those areas before you submit a loan application; don’t wait on these actions as they can take months rather than weeks and you will need time to request and monitor the request for a review of your credit report.