December 11, 2023
In 2024, a successful FHA home loan application means taking some extra time in the planning stages to work on your financials including your credit scores and the amount of debt you carry. Some borrowers don’t view those two issues as being equal…at first.
FHA Loan Approval Factors You Should Know
Your FICO score range is an important part of the data your lender uses to justify approving your mortgage. But it isn’t the only benchmark. Did you know that to be approved for an FHA mortgage, try to come to the loan application process with a debt ratio of 43% or less?
That means your monthly outgoing debt takes up no more than 43% of your monthly income.
Managing Your Debt Ratio: How To Get Started
The Consumer Financial Protection Bureau (CFPB) offers a planning tool you can use to start reducing your monthly debt ratio. It’s a tool designed to help you get a better look at your monthly spending habits. CFPB offers a monthly spending tracker sheet you can use to prioritize your spending each month and see where most of your money is going.
Some get a bit of a surprise. They aren’t aware of how much they actually spend on indulgences like eating out, getting a latte, and online entertainment subscriptions.
Seeing your money habits in print can help you get back on track or remain productive with your current plan.
Your Debt Ratio And Closed Credit Accounts
Some go too far when working on their debt ratio. They are tempted to cancel credit cards after paying them off. Some of these consumers believe closing that line of credit might help them get closer to loan approval. But what is the reality?
The age of your credit can be an essential factor. A participating FHA lender may look at an account that is still open but has a low minimum balance or none at all, and choose that as preferable to a closed account. In short, closing an old credit account won’t help you get more favorable consideration from the loan officer.
Avoid applying for any credit while in the process of lowering your debt ratio. The closer you get to loan application time, the worse applying for any kind of new credit becomes. Some advise you should avoid new credit 12 months ahead of your loan application.
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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