November 29, 2013
A reader asks, “I have checked my credit report before and it came back insufficient. I do have older doctor bills that are outstanding but everything else I have saved and payed cash for, therefore making it unnecessary to have a credit card.”
“If I had a portion of money for a down payment on a house would I be able to receive an FHA loan? And I would also like to know what the first step of buying a house is, because I would be a first time home buyer and have no idea what the process is.”
Having the required minimum 3.5% cash investment is only one requirement for FHA loan approval, so the simple availability of the down payment wouldn’t be enough. A borrower is required to have a minimum credit score that meets FHA standards, but the lender often has higher standards than the FHA minimums. This is acceptable to the FHA–all participating FHA lenders may require higher FICO scores than the FHA minimums.
The borrower’s first step based on the circumstances as described in the reader question should be to call the FHA at 1-800 CALL FHA and request a referral to an FHA/HUD approved housing counselor who can help.
Housing counselors can help the borrower get started with becoming a first time home buyer, give advice on credit issues as they relate to FHA home loan approval, and answer many of the questions this reader might have in the process. The lack of a credit card on your credit report may not be an issue, but a borrower’s repayment history in other areas will definitely be scrutinized for purposes of loan approval.
Credit score issues can be worked on, but potential borrowers should beware spending money on so-called credit repair agencies. In many cases, you may learn from a good FHA-approved housing counselor that the things you pay for with “credit repair” are things you can do yourself without having to spend money on a third party service.
New FHA loan applicants should know that many finance experts recommend preparing for an FHA home loan at least 12 months in advance to work out any credit issues or other areas that may need attention before submitting a credit application. The FHA-approved housing counselor can explain the hows and whys of this “12 month rule” in detail.
Do you have questions about FHA home loans? Ask us in the comments section. You can apply or get pre-approved for an FHA loan at www.FHA.com, a private company and not a government website.
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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