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There are some important credit mistakes to avoid in the year leading up to your FHA home loan application. Do you know what can cause your credit score to drop and why you should avoid such situations before you apply for your mortgage?

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What NOT to do Before Applying for Your FHA Home Loan

August 14, 2022

What NOT to do Before Applying for Your FHA Home Loan
There are some important credit mistakes to avoid in the year leading up to your FHA home loan application. Do you know what can cause your credit score to drop and why you should avoid such situations before you apply for your mortgage? There are some simple tips and tricks to consider in the 12 months leading up to your mortgage application.

Missed Payments Hurt Your Credit Scores

Missed payments are one of the leading factors of credit trouble for home loan applicants. Learn to think like a lender; what does it do to your creditworthiness to have a missed payment in your credit report leading up to your mortgage application?

Your loan officer’s job depends in part on making sure the loan applicants who get approved can realistically afford the mortgage. How do you convince your lender that you can?

Essentially you want to have NO missed payments for the 12 months or more leading up to your application. Some people find making the switch to automatic payments instead of mailing or manually paying online to be the best solution for avoiding the missed payment issue.

Big Credit Card Expenditures

What happens when you make a large purchase on your credit card? If you do it too close to your mortgage loan application, it can hurt your chances because your credit utilization ratio has changed. If you have a credit card balance that was roughly half of your credit limit and your new purchase pushes the balance closer to 100%, the lender is likely to view that unfavorably.

Closing a Credit Account Is a Bad Idea

Paying off a credit card is GOOD. It favorably changes your credit utilization rate. But if you close one? That hurts because you reduce the amount of credit open to you. Having credit you do not use or use minimally can help your credit scores over time. Moderate and responsible use of a larger credit line is a plus. Closing the account for good is a minus.

Opening New Credit Is a Bad Idea

Don’t apply for other new credit when you are in the market for a home loan. Why? Any new debt you add to your monthly financial picture may make it harder for your loan officer to justify approving your loan application.

Some kinds of home loans, such as an FHA One-Time Close construction loan, may be more expensive compared to an existing construction purchase. Such loans may require a participating FHA lender to use higher standards to ensure you can afford the new loan. Are you a good credit risk?

That is the answer your loan officer wants to answer when processing your application.

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