How to Get Credit-Ready for a Mortgage
March 29, 2021
The FHA helps first-time and low-income homebuyers by having lower down payment requirements for its borrowers. Additionally, it has a minimum credit score requirement of 580. Despite this lower eligibility criteria, it is important to remember that FHA-approved lenders can set their own requirements, known as “overlays,” for borrowers to qualify.
By working on improving your credit score, you can save yourself the stress of possibly not qualifying for a loan or getting a higher interest rate. Here are a few things you can get started on to help.
Think Ahead
Being proactive with your credit score will benefit you immensely when applying for a mortgage. Improving your credit requires time and patience, and it will not happen overnight. If you know you will be shopping for a house in the next couple of years, start working on your credit NOW. It gives you more time to move your score up to a higher credit threshold, which may help you get a lower interest rate. The more time you have to bump up your scores, the more money you have a chance to save.
You Can Only Fix What You Know
Once you know what your credit score is, you can get to work on improving it. It is easy to get a hold of your scores and go over any issues you may have. Under the Fair Credit Reporting Act, everyone has a right to request their own credit report from a credit bureau to review it. This allows borrowers to dispute any errors by writing to the relevant credit bureau, which must investigate the dispute within 30 days.
Be Punctual with Payments
Payment history is a major consideration for credit bureaus when calculating your credit score. In fact, it makes up 35% of your score, making it the most important factor of your credit. The later you are on your payments, the more it hurts your credit score. If you have recent late payments on your credit reports, it is usually a good idea to let some time pass before you apply for a mortgage. It also reflects well on your credit report when your account status is updated to "paid in full."
Do Not Open New Lines of Credit
If you are in the process of improving on a low credit score, avoid making any new credit applications. When you apply for a new line of credit, lenders perform what is called a “hard inquiry,” which itself can affect your score. While there might not be a hard inquiry made each time, there is a chance it could. Several hard inquiries in a short timeframe sends a red flag to lenders who might assume that you may be mismanaging your finances.
While working on your improving your credit score, it is worth remembering that all lenders will NOT treat your application the same. The home loan interest rates you see listed online or at your local bank are not the same rates offered to every single borrower. Along with other factors, your credit score affects the number your lender offers, and one lender may judge these factors differently than another. It is always best to shop around for mortgages the way you will for your house and get the best deal for you.
------------------------------
RELATED VIDEOS:
Homebuyers Benefit From the Work Done by Fannie Mae
HUD 4000.1 is Sometimes Called the FHA Handbook
Credit History Is Presented as Your FICO Score
FHA Loan Articles
February 17, 2025The federal government backs FHA home loans, which allows participating FHA lenders to offer lower down payment options and more lenient credit requirements. How much do you really know about your FHA home loan options and how they compare to other mortgage choices?
February 13, 2025For many college graduates, student loan debt is a concern. A common question is how this debt impacts the ability to buy a home. This Q&A explores the relationship between student loans and FHA loan approvals. How much do you know about how your student loan debt affects your ability to be approved for a mortgage?
February 12, 2025Choosing between FHA and conventional home loans can be daunting for some first-time home buyers. What are the concerns between these two programs, and what does each one offer the borrower? We examine some of the key issues in our question-and-answer session about FHA mortgages versus conventional loans.
February 11, 2025Established in 1934 as part of the National Housing Act, the FHA's primary mission is to stimulate the housing market by providing mortgage insurance to lenders. This insurance reduces the risk associated with lending to borrowers who may otherwise be considered higher risk, encouraging lenders to offer more favorable terms, such as lower down payments and more flexible credit requirements. A key element of the FHA program is its commitment to fair housing, which is deeply rooted in the Fair Housing Act.
February 10, 2025How much do you really know about the home buying process? One major factor in protecting your new investment is knowing how the title search process works and why you need to have one done. This quiz will assess your comprehension of what a title search entails, why it's so important when using an FHA loan, and how it protects you as a buyer. From identifying potential liens to guaranteeing clear ownership, a title search plays a critical role.
