Did You Know?

FHA loans are one of the best options for young, first-time home buyers who have not had as much time to save for a large down payment or establish a high credit score.

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What Affects a Home Loan Applicant's Credit the Most?

What Affects a Home Loan Applicant's Credit the Most?
A home loan is one of the most important investments you can make; buying a home means owning property, and being an owner means the potential to watch your investment grow in value over time.

Unlike buying a new vehicle, which begins depreciating as soon as you drive it off the lot, buying a home means anticipating more value from your investment and not less.

That is one reason why the process of applying for a home loan and getting approved can be so difficult when looking from the outside of the process.

The lender has to make sure the borrower is a good credit risk and there are financial benchmarks for doing just that.

Credit approval for any large loan depends a combination of factors. One factor is your employment history; those who haven’t been working very long (less than 24 months in many cases) have a much harder time getting loan approval than those who have a longer work history. 

The nature of your income is another factor–if you earn commission, for example, you will be required to have earned those commissions for a minimum time period. 

The same is true for contractors who have recently switched to contract-type work and self employed borrowers who also have recently made the jump.

And then there’s your credit report. Credit scores are NOT the sole determination of a borrower’s credit worthiness, as we’ve explored above. But your FICO scores ARE a very important part of that process, and if your credit scores are low your lender will have a hard time justifying the loan.

Working on your credit in advance of your home loan is the best way to get closer to home loan approval. 

Credit reporting agencies such as Experian advise consumers that there are four factors that affect your credit scores. Experian ranks these factors from most to least influential (on your credit scores) on its official site as follows:
  • Most influential: Payment history (paying bills on time)
  • Highly influential: Age and type of credit (establishing a good mix of loan accounts); percent of credit limit used (avoiding “maxing out” cards)
  • Moderately influential: Total balances and debt (limiting debt to what’s prudent)
  • Less influential: Recent credit behavior and inquiries (applying for new credit); available credit (avoiding opening unneeded credit accounts)
Borrowers who pay attention to these areas at least 12 months before applying for a home loan get much closer to having that loan approved. Working on these issues improves your credit scores over time, and it’s best to expect the process to take more time than you realize to start working. The time invested is well worth the result.


What Is an FHA Loan?
Using an FHA Loan Calculator
Meeting FHA Loan Guidelines Improves Your Chances
See Your Credit Scores From All 3 Bureaus
See Your Credit Scores From All 3 Bureaus

FHA Loan Articles

When not to Consider Refinancing a Home

There are plenty of reasons to delay plans to refinance a home. One reason has made big headlines. When borrowers face higher interest rates than originally approved for, that is a good reason to wait to refinance.

How FHA Construction Loan Draw Disbursements Work

When you are approved for an FHA One-Time Close Construction loan, you get a single loan that pays for both the costs to build the house, and serves as the mortgage. One application, one approval process, and one closing date.

Mortgage Rate Predictions for 2024

In the last days of November 2023, mortgage loan rates flirted with the 8% range but have since backed away, showing small but continued improvement. What does this mean for house hunters considering their options to become homeowners soon?

Is It Cheaper to Buy a Home With an FHA Loan or to Rent?

In May 2023, USA Today published some facts and figures about the state of the housing market in America. If you are weighing your options for an FHA mortgage and trying to decide if it’s cheaper to buy or rent, your zip code may have a lot to do with the answers you get.

Why Do FHA Loans Have Borrowing Limits?

FHA loan limits serve as a crucial mechanism to balance financial sustainability, regional variations in housing costs, and the agency's mission to promote homeownership, particularly for those with limited financial resources.

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