October 26, 2021

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Home Loan Preparation: Credit Issues

Home Loan Prep: Credit Issues

Are you worried about your credit? Do you need to do to prepare for a mortgage loan application? There are avenues that can help you get ready for a home loan including advice and assistance with credit questions.

We’ll examine your options in this area below, but first it is important to review some of the most common credit problems that stand in a borrower’s way. Home loan and refinance loan approval is not impossible, but for some borrowers it’s necessary to take some extra time to work on credit issues.

Here are some credit concerns you should pay attention to so you can raise your credit score:

Late And Missed Payments

This area is one of the main reasons consumers are denied any kind of loan. Late and missed payments not only make it hard for your loan officer to justify approving the loan, they also lower your FICO scores.

Carrying Too Much Credit

If you have too much debt compared to your income, your FICO scores can suffer.

Low Credit/Not Enough Credit

Have you just recently started using credit? You may need some time to establish credit patterns and habits.

Too Many Credit Applications

Applying for too much new credit hurts your scores. Why? A credit application may result in a “hard inquiry” on your credit report, which can lower your FICO numbers.

Start Working On Your Credit Today

You can get started with the housing counseling portion of your FHA home loan planning by contacting the FHA directly at their toll-free number 1-800 CALL FHA. This lets you request a referral to a local, HUD-approved housing counseling agency in your area.

Credit Repair Issues

FHA mortgages have more forgiving FICO score requirements, but lender standards will also apply and those standards are often higher than the FHA minimums. Repairing your credit is a combination of establishing good habits, avoiding too much credit, and reducing your debt.

Remember that some things are fixable, some are NOT.

You cannot remove accurate, up-to-date information from your credit report. That means that if you have missed payments on your credit record-especially in the last 12 months? Filing a complaint to contest the credit report won’t do anything with lasting results. 

The accurate and timely information will stay on your record. That is true no matter what a third party company might promise.

Some borrowers are considering or are already entered into some kind of debt settlement program. If you want to use a third-party debt settlement option, keep in mind that any missed payments in the 12 months leading up to your FHA mortgage loan application will reflect poorly on you as a good credit risk. Put at least 12 months between your last missed payment and your home loan application.

Any third-party debt settlement plan involves skipping payments for a period of time is not advisable. If you have not made arrangements with the creditor themselves, DO NOT SKIP PAYMENTS.

Try to work with your creditors directly to arrange alternate payment options on a predictable schedule, and get that arrangement in writing so you can show the lender. 

Some third parties might suggest applying for a new Social Security Number or other identification as a way to apply for a large line of credit without being associated with past credit mistakes. If this is suggested to you, find a different company to work with and move on.

Credit counseling and credit monitoring are good options to examine–a qualified credit counselor is an important resource you should consider when thinking about how to repair past bad credit mistakes ahead of your FHA home loan or refinance loan application. 

Joe Wallace - Staff Writer

By Joe Wallace

May 21, 2020

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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About FHANewsBlog.com
FHANewsBlog.com was launched in 2010 by seasoned mortgage professionals wanting to educate homebuyers about the guidelines for FHA insured mortgage loans. Popular FHA topics include credit requirements, FHA loan limits, mortgage insurance premiums, closing costs and many more. The authors have written thousands of blogs specific to FHA mortgages and the site has substantially increased readership over the years and has become known for its “FHA News and Views”.

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