May 19, 2020
What do you need to know about credit requirements for an FHA mortgage? There are plenty of those who have no choice but to seek housing even in the worst of times; what should you know about credit requirements for a mortgage in the age of coronavirus?
Borrowers Should Work On Their FICO Scores Earlier
You can raise your credit scores by paying all bills on time, every time. You can also raise your credit scores by lowering your credit card balances below the 50% mark (30% is ideal), and by not applying for new credit on top of the credit you are already paying down.
Start working on your credit as far ahead of time as you can; knowing the contents of your credit report is a GREAT start.
Many consumers learn they must actively monitor their credit on a regular basis.
Identity theft is one major motivation for doing this; another is to ensure inaccurate data doesn’t suddenly appear on your report ahead of your loan application.
In normal times the going wisdom includes starting to monitor and work on your credit 12 months in advance. For some consumers, this will NOT be enough time (depending on FICO scores and related issues).
Credit Requirements: Tougher In The New Normal?
There are millions of homeowners affected by lockdown measures (even as more states attempt to reopen), and millions of home loan forbearances.
The FHA itself has NOT changed its credit requirements, participating lenders ARE. This means that borrowers may need to start working on their credit earlier, and longer before applying for a mortgage.
And you can guess what may happen if a percentage of the millions of homeowners currently in home loan forbearance re-default on mortgages after the forbearance period ends? Credit requirements could be tightened further later on in the year.
Things To Consider Going Forward
Don’t apply for other credit in the time leading up to your mortgage application. If you have committed to buying a home, also commit to not putting in new credit applications elsewhere.
Avoid a major job change (a new job at a different company, switching from salary to commission, moving from being a salaried employee to contractor, starting your own business) in the year leading up to your application.
This is an observation made in light of heightened sensitivity (at your bank) to factors that could make your loan a bigger risk for the lender.
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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