January 26, 2017
FHA home loans offer an alternative to the more strict requirements of conventional mortgages. FHA loans typically feature a lower down payment requirement than many conventional loans, and have more forgiving credit standards (though lender standards will still apply).
Some apply for an FHA mortgage unsure of how their past credit activity or even their current FICO score might affect their chances at loan approval. If you are one of those people, there are some things you can do for greater peace of mind going into the loan process.
The catch is that advance planning is required-it’s best to start preparing for a major financial commitment like a mortgage a full year or more before applying. The planning time is crucial since you will need to save up money for closing costs, the down payment, appraisal and home inspection fees, etc.
But it’s also important because checking your credit report, examining your FICO scores, and correcting any erroneous information (or contesting it) takes time. The last thing a borrower wants to be doing as their loan application is being reviewed is to worry about whether certain items have “fallen off” a credit report or whether the lender will overlook mistaken or erroneous entries.
What issues could be a problem for borrowers who don’t give themselves enough time to address credit report problems? One good example-old data that should have come off the report by now-if you have outdated information on your report, for example, it’s not safe to assume it simply falls off your report automatically. Sometimes it does not, or there are mitigating factors that cause an old credit problem to come back to haunt you.
The borrower with an old collection on the report who pays it off, or who makes a partial payment may discover that the old collection data has updated with the new activity. Will this cause the lender to look twice at your loan application? Much of what could or should be done is circumstantial and the lender will review your credit information on a case-by-case basis when dealing with such problems.
The key is to discover such potential problems early so you have ample time to deal with them before it becomes a matter of wondering if the lender will say “no”. Start examining your credit reports as soon as you have decided it might be time to buy a home-you’ll be glad you did.
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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