May 16, 2019
First-time home buyers and experienced home owners alike sometimes need help understanding what it takes to be approved for a major line of credit like an FHA home loan.
What does it take to financially qualify for the mortgage and get on the road to home ownership? Buying real estate with an FHA mortgage means making a serious investment of time and money. And that usually begins with budgeting, saving, and working on your credit.
Preparing your credit a year in advance or more is a very good way to prepare for the home loan application process. Why?
Your lender needs to see at least 12 months of on-time payments on ALL financial responsibilities prior to your applying for the home loan. Anything less than this can hurt your chances at loan approval.
Your lender wants to see patterns of reliable credit use, and among those patterns she wants to see that the borrower has not been carrying high credit card balances or living on maxxed-out credit cards. The lender is looking for a borrower with an acceptable debt ratio.
If your outgoing debt is higher than 40%, before you apply for any major credit line you want to reduce that debt as much as possible. Cutting your debt ratio is just as important as your credit scores, and you don’t want to come to a home loan application with marginal scores or high debt if it can be avoided.
You do not have to pay third party agencies to do these things, and doing these credit steps can help improve your credit scores overall-if you start early enough.
Remember that in addition to your credit scores and debt ratios, your employment history is also scrutinized. Are you new in the job market? Or have you switched from being a regular employee to a freelancer or contract worker?
If so, try to come to the home loan process with two years of employment (as a freelance or contractor in those cases) before applying.
Those without much work experience overall or those with little time as a freelancer or contractor will have a better chance at loan approval with a minimum of two years on the job, though not necessarily with the same employer.
Talk to a lender about these issues if you are not sure how they might affect your home loan application. It’s always better to apply well-prepared for your home loan.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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