February 14, 2022
FHA mortgages generally have more forgiving credit score requirements than some of their conventional counterparts.
If you are thinking of applying for a mortgage you definitely want to start reviewing your credit far in advance of the application–that’s advice we give out here on a regular basis and is fairly “Home Loans 101” type information.
Newcomers quickly learn that starting work on their credit as early as possible is the best move they can make in the planning stages of the loan.
But what isn’t so entry-level advice? What some credit reporting agencies advise on managing your credit with or without a home loan to plan for.
The implications of this advice are basically that credit is not a “set and forget” type of issue; for best results, you’ll want to be actively monitoring your spending, your credit use, and your balances.
The credit reporting agency TransUnion has a list of steps every consumer should take to rebuild credit if needed–this advice actually benefits EVERYONE, not just those who need to improve their FICO scores.
And it’s telling that the first item in the list of do-it-yourself credit repair (the best kind)? Check your credit report.
You’ll want to review the reports from all three major credit reporting agencies and keep an eye out for inaccuracies, outdated information, and any indications that you have been the victim of identity theft.
After that advice, not surprisingly, the next step in TransUnion’s advice is to create and maintain a budget–this is crucial in order to take the rest of the advice which includes keeping a close watch on your finances going forward including credit card balances (which you should try to reduce as much as possible).
And most importantly, doing “frequent financial checkups” to make sure your financial plans are working, that your credit scores are indeed improving, and that you are getting close as possible to being ready to apply for the mortgage.
How does all this help you when getting ready to apply for your FHA mortgage? Your lender basically wants to see your credit report to determine you are a good risk for the mortgage.
That means FICO scores in an acceptable-to-the-lender range (the FHA minimums are not necessarily the same as your lender’s minimum FICO score range for the lowest down payment), that means good credit utilization (keeping your credit card balances low helps in this area) and that you have a record of consistent, on-time payments on your financial obligations.
One of the best things you can take away from advice like this, aside from making the budget and taking the steps to fix your own credit, is that this process is a race, but NOT a sprint. Think of the planning and saving stages of your home loan like training for the Boston Marathon.
You don’t wake up four weeks before the event and decide you’re going to run that marathon. You start with a long-range plan to get ready and you map out your goals for each milestone along the way. It’s a similar concept when planning to improve your credit and buy a home.
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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