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Home Loan Approval And Your Credit Scores

August 29, 2024

Do You Know How To Dispute Your Credit Reports?

It doesn’t matter if you want to buy a single-family home in a rural area or a condo unit in a busy metropolis; if you don’t understand your credit report or know your credit score, you aren’t ready to financially commit to a home loan.

Fortunately, the Fair Credit Reporting Act requires the major credit agencies to offer you a free credit report each once per year.

In order to buy a home, consumers must become credit-literate. That means knowing how credit reports work, how to interpret credit scores, and how a credit report affects one’s ability to be approved for a loan.

There are three major credit reporting agencies: Equifax, TransUnion, and Experian. That is one reason why we encourage borrowers to check their credit reports as early as possible before applying for an FHA mortgage or any other major line of credit.

You may have to dispute an error on your credit report and that error isn’t necessarily reported across all three of your reports.

Even if their credit reports show spotless credit and no evidence of identity theft, borrowers should always know what their lenders will see before completing an FHA home loan application.

FICO scores are a big factor in FHA loans and not just for loan approval–the amount of interest you are charged depends on your FICO scores. That said, your credit scores aren’t the whole story.

A home loan applicant’s repayment history related to all financial obligations in the 12 months leading up to the new loan application) are also just as important as FICO scores.

And remember what we mentioned above about FICO scores being crucial for setting your interest rate? FICO scores are ALSO crucial when it’s time to determine the required down payment.

A higher down payment is required if your FICO scores are too low.

The FHA single-family home loan program has a set of FICO score requirements that state a borrower can qualify for FHA maximum financing, including a required 3.5% down payment.

This is offered to applicants with FICO scores of 580.

Borrowers with FICO scores below 580, but not lower than 500 do technically qualify for an FHA loan. These applicants must pay a minimum of 10% down.

The scores mentioned above may qualify according to FHA standards. However, lender standards may also apply, so you will need to discuss the lender’s requirements versus the FHA baseline.

Things to do: find out what your FICO scores are from the three major credit reporting agencies, and also learn what your chosen lender or potential lender will require in terms of FICO scores. Knowing both of these things will help you learn what may be required to happen next.

Working on your credit early helps if problems need to be resolved. Addressing errors on a credit report, old information, or other issues can take time—more time than most consumers realize.

Joe Wallace - Staff Writer

By Joe Wallace

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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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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