January 9, 2012
When it’s time to apply for an FHA home loan, your credit score is an important part of the application. Participating FHA lenders examine your credit history and the score you currently have to make a determination about your creditworthiness and what kind of risk you make.
Credit experts recommend preparing for any kind of major loan in advance, and when it comes to a home loan, you should take at least a year to get your credit ready–starting with a good look at your credit report.
Today’s question comes from a reader concerned about credit, but it’s clear from the question the reader has the right idea–taking at least a year to get ready for the FHA loan application is the best approach possible. This question came to us over the weekend;
“My husband and I have poor credit, my score is 554 and his score is 630. We had medical issues in the past, and my identity was stolen 3 years ago, with the result of me having about 15 accounts in my name that were not mine. I’m currently working with an organization trying to clear those accounts and improve my credit score…but my credit score is improving too slowly. We wish to buy our first home, and we know we can afford it (currently our combines gross income is $10,000 per month). We have never been late on our rent payments. My question is: how can we work with the credit issues to buy a house in about a year? What should I do?”
In situations like these the very first move a potential FHA loan applicant should make is to contact the FHA/HUD and ask to speak to a housing counselor. You can call the Department of Housing and Urban Development at (800) 569-4287 or use the interactive map to search for a HUD-approved counselor in your state.
Credit issues require specific advice as any situation is completely unique. There are some basic things borrowers can do, but a counselor can give more specific, personalized advice. To prepare for an FHA loan, borrowers should make all payments on time for at least 12 months prior to the loan application and reduce or close unnecessary lines of credit. The more open lines of credit, the more potential debt you have.
Speaking to a housing counselor can help with credit issues, the advantages of buying over renting, foreclosure avoidance, and many other topics. FHA/HUD approved counselors can help in all these areas–learn more: http://portal.hud.gov/hudportal/HUD?src=/i_want_to/talk_to_a_housing_counselor
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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