March 17, 2023
A lot of borrowers want to buy a home but worry that they have credit problems that might keep them from getting their mortgage loan approved.
Any borrower worried in this way should do four important things starting about a year away from the day you want to apply for the loan.
What are the four keys to credit repair ahead of your home loan? There are two items in the “Do” category and two in the “Don’t” category you should consider doing as early as possible before applying for best results.
#1 Credit Repair Hack For Home Loan Applicants
The number one credit repair hack any consumer can try begins with knowing the contents of your credit report. It’s that simple, really. And everything else you do going forward depends on this step being taken. It’s not enough to get a free credit report and start making plans.
You will need to know what your credit report says AND you will need to monitor your credit on a regular basis to make sure there are no surprises when your lender opens the report.
What does this mean? Actively monitoring your credit to get early warnings about inaccurate data, evidence of identity theft, etc.
If you have disputable items on your credit report, you must resolve these BEFORE applying for your home loan. Anything less risks you getting turned down for the mortgage loan.
The #2 Credit Repair Hack: Paying On Time And Reducing Debt
A year or more ahead of your home loan application, arrange to pay all your bills on time and begin cutting down your revolving debt balances.
The lower your total amount of monthly debt, the better your lender likes it. Remember, any late or missed payment within the 12 months leading up to your mortgage loan application and you’ll have a much harder time convincing your lender you are a good credit risk.
#3 Credit Repair Hack: Don’t Apply For New Credit
Opening new lines of credit before your new home loan application makes it harder for your lender to justify approving your home loan.
Why?
Anything you do to disrupt your current debt-to-income ratio and add more debt to your monthly obligations may force your lender to recalculate your debt ratio. If your debt ratio is too high you can’t get approved for the loan. The bottom line? Don’t add more debt–always reduce your debt before your loan application.
Credit Repair Hack #4: Don’t Close Old Credit Accounts
Do not give in to the temptation to pay off an old credit account (which you should definitely do) and then close it down (which you definitely SHOULD NOT do).
The reason for this? The age of your credit is one factor–the older your credit, the better your lender likes it.
Closing an old account could actually hurt your credit–paying your balances down helps, closing accounts does not. If you need more information, it never hurts to ask the participating lender what standards go into determining loan approval for that lender.
Remember, FHA loan rules apply, but so do lender requirements.
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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