July 8, 2019
There are lots of myths about home loans and the credit requirements you need to be approved for a mortgage. Here are some pervasive myths about credit as it relates to the home loan application you may be considering in the near future.
Credit Myths: You Need Perfect Credit To Get A Mortgage
FHA mortgage loan credit standards are more forgiving than some conventional options and borrowers do not need to have a perfect record to qualify.
What you DO need is 12 months or more of on-time payments with no late or missed payments, a history of responsible credit use with balances that are not close to the credit limit, and a solid employment history (two years or more).
Home Loan Credit Myths: The Lender Only Pulls Your Credit Report Once
Your lender may pull another copy of your credit report at any time during the FHA home loan process (or any other type of mortgage loan) including just before closing the deal. Do not assume it is safe to apply for new credit, miss or skip payments on other financial obligations, etc. before the loan closes-this is a huge mistake.
Credit Myths: There Is Only One FICO Score
Your FICO scores are multiple, your scores may not match, and your lender will use one of your FICO scores (the median score) to determine home loan approval. For FHA mortgages, HUD 4000.1 states that when three scores are reported, the middle FICO score is used. For two credit score situations, the lowest score is used.
Borrowers who worry about their FICO scores should take steps to raise the score before applying for the loan-many months before. Lowering your credit balances, paying on time, and avoiding new credit are all great ways to improve your scores.
Credit Myths: All Lender Requirements Are Alike
Do not assume that the higher standards of one lender apply at any lender you wish to consider. This is NOT true. Shop around for a mortgage lender to get the best rates, terms, and options for your new home loan. Just because one lender does not want to work with you and your circumstances does not mean that all lenders will do the same.
You may find better luck when comparing financial institutions. Some lenders may have ways to work with people with past credit problems that others don’t want to deal with.
Shop around! Remember that you may be able to bring compensating factors to the bargaining table including making a higher down payment or having cash reserves that could be used as mortgage payments in the future.
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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