July 15, 2021
Buying a home means paying attention to your financials–credit scores, debt repayment habits, and credit utilization rates.
Paying attention to them as early as possible is an important choice when you are planning your home loan. Don’t put off working on your credit–time is not on your side if you are planning to apply for a home loan in the next 12 months if you haven’t looked at your credit scores, reports, etc.
If you want to buy a home with an FHA mortgage, you generally have more forgiving credit qualification guidelines from the FHA, and that’s a great reason to use an FHA mortgage.
FICO score issues can be a major worry for some borrowers, but by working on your own credit far ahead of your home loan you may be able to get closer to home loan approval than you might realize.
FHA loan rules in HUD 4000.1 tell us (and your lender) that FICO scores at 580 and above meet FHA loan requirements for maximum financing and the lowest down payment.
That said, additional lender standards may also apply.
FHA loan mortgage rates and your credit scores have some things in common. Those similarities include the fact that they are both subject to change daily depending on activity, they are both subject to certain factors that must be respected.
For mortgage rates that means understanding that market forces and other variables have the power to change mortgage rates daily, sometimes even multiple times per day.
Will the lender automatically reprice your mortgage because rates changed? Not necessarily, and definitely not if you have entered into a mortgage rate lock commitment with the lender.
Credit scores are subject to change. What changes your credit scores?
Making on-time payments or missing your payments is one way your score can be affected. Using too much of the credit limit on your credit cards, or conversely using far less than the limits on a consistent basis can also change your scores. How you use your credit can be just as important as when you pay and how consistently.
Mortgage loan interest rates and credit scores also have another thing in common–your FICO scores will affect the interest rate you are offered. Your credit score is a factor just as much as your income, repayment history, and credit utilization.
That means you must pay equal attention to all areas your lender will review to approve your loan. Your good credit score won’t mean as much to the lender if you have an inconsistent repayment history or if you carry too much debt compared to your monthly income.
Learn About the Path to Homeownership
Take the guesswork out of buying and owning a home. Once you know where you want to go, we’ll get you there in 9 steps.
Step 1: How Much Can You Afford?
Step 2: Know Your Homebuyer Rights
Step 3: Basic Mortgage Terminology
Step 4: Shopping for a Mortgage
Step 5: Shopping for Your Home
Step 6: Making an Offer to the Seller
Step 7: Getting a Home Inspection
Step 8: Homeowner’s Insurance
Step 9: What to Expect at Closing
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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