July 26, 2018
Do you know what to do if your credit score isn’t perfect but you are still buying a home?
There are some steps you can take that have nothing to do with paying a third party to try to fix your credit rating, or paying someone else to do things you should be doing for free where credit repair is needed.
Start Reviewing Your Credit Rating Early In Your FHA Home Loan Process
This means reviewing and working on your credit before you decide it’s time to fill out application paperwork for an FHA mortgage loan or FHA refinance loan. You need to know your credit scores long before you start house hunting. You can request free copies of your credit report (one per year from each of the major credit agencies) and you should.
Reduce Your Debt Ratio To Be A Better Candidate For Home Loan Approval
If you have a credit score that is not perfect, one factor that can work in your favor is having a lower debt-to-income ratio. Start reducing the amount of outgoing debt you have every month to make yourself a more attractive home loan applicant.
Borrowers who carry too much debt compared to their income (monthly) make it harder to justify FHA home loan approval; the lender is required to make sure you can afford your mortgage loan which includes not just the amount of your monthly payment but also any required insurance, property taxes, and homeowner’s association fees.
Do Not Open New Lines Of Credit
Every credit line you have is not just a contributing factor to your current debt ratio, but also your future debt ratio should you need to max out your credit card for some reason.
The balance you carry today may not be as high as the balance you carry tomorrow, and in the lender’s eyes that’s a reason to look closely at the number, age, and use of your current credit.
Opening new lines of credit not only increases your potential debt ratio, but it also affects your credit scores; an inquiry for a new line of credit may pull your FICO scores lower just when you need them to be as high as possible in order to get the loan, depending on the timing of your credit application and other factors.
Don’t Use Too Much Of Your Current Credit
Your lender will review your credit card balances. Are you carrying close to the max on your cards? This can hurt borrowers in general, but especially those who have less than perfect credit who need to apply for an FHA mortgage loan or refinance.
Pay Your Bills On Time
Your payment record is one important factor in the lender’s decision to approve or deny your FHA mortgage. Don’t miss or be late on ANY payments in the 12 months leading up to your home loan application.
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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