Areas of Your Credit to Work on Before Applying for a Mortgage

May 25, 2020

If you are not sure about what you need to do to prepare for a mortgage loan application, It’s important to seek housing counseling, begin credit monitoring, and actively work on your credit before you apply.

You can get started with the housing counseling portion of your FHA home loan planning by contacting the FHA directly at their toll-free number 1-800 CALL FHA. This lets you request a referral to a local, HUD-approved housing counseling agency in your area.

While it is true that FHA mortgages have more forgiving FICO score requirements, lender standards will also apply and those standards are often higher than the FHA minimums. Improving your credit score is a combination of establishing good habits, avoiding too much credit, and reducing your debt.

Let’s break down the areas of your credit you should pay attention to so you can raise your credit score:
 

• Missed payments--one of the main reasons for loans being denied and lower FICO scores
• Late payments--another contributing factor to lower credit scores and difficulty getting loans approved
• Too much credit--if you have too much debt compared to your income, your FICO scores can suffer
• Not enough credit--if you have only recently started using credit you may need some time to establish credit patterns and habits
• Applying for too much new credit--a credit application may result in a “hard inquiry” on your credit report, which can lower your scores.

And when you start monitoring your credit you will learn a great deal; for example, you cannot remove accurate, up-to-date information from your credit report. That means that if you have missed payments on your credit record-especially in the last 12 months? Filing a complaint to contest the credit report won’t do anything with lasting results.

The accurate and timely information will stay on your record. That is true no matter what a third party company might promise.

Debt settlement is an issue for some home loan applicants; if you want to use a third-party debt settlement option, keep in mind that any missed payments in the 12 months leading up to your FHA mortgage loan application will reflect poorly on you as a good credit risk. Put at least 12 months between your last missed payment and your home loan application.

If your third-party debt settlement plan involves skipping payments for a period of time, you might wish to reconsider such a move and try to work with your creditors directly to arrange alternate payment options on a predictable schedule, and get that arrangement in writing so you can show the lender.

Some third parties might suggest applying for a new Social Security Number or other identification as a way to apply for a large line of credit without being associated with past credit mistakes. DO NOT DO THIS.

It is not an acceptable practice and could red-flag any credit application.

Credit counseling and credit monitoring are good options to examine--a qualified credit counselor is an important resource you should consider when thinking about how to repair past bad credit mistakes ahead of your FHA home loan or refinance loan application. 

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