Advice In Fixing Your Credit To Qualify For FHA Loan

Is Fixing Your Credit To Qualify For FHA Loan Recommended?

If you are planning on purchasing a home in the near future, do not wait until the last minute. There are two very important factor when it comes to qualifying for a FHA Loan. The first is income and second is credit. You need documented income to qualify for any type of mortgage loan. Cash does not count in the finance world like it used to prior to the 2008 Real Estate and Mortgage Meltdown where stated income and no doc mortgage programs were very common and lending was super easy. Now, everything is income documented and all mortgage lenders will require W-2s, 1099’s, paycheck stubs, and two years tax returns. Tax returns are also verified by mortgage lenders with the Internal Revenue Service. You can have the best credit in the world but if you do not have documented income, then there is no way you can qualify for a FHA Loan. For FHA borrowers with little to no income or no documented income, FHA allows them to have non-occupant co-borrowers to be added on their FHA Loan so they can qualify for income.  However, you can have very low credit scores, prior bad credit, prior bankruptcy, prior foreclosure, prior short sale, prior deed in lieu of foreclosure, prior judgments, tax liens, charge offs, late payments, and outstanding unpaid collection accounts but as long as you have documented income, you can qualify for a 3.5% down payment FHA Home Purchase mortgage loan. FHA is extremely lenient with credit, credit history, and prior bad credit.

Fixing Your Credit To Qualify For FHA Loan: Minimum Credit Requirements

Even though you may meet the bare minimum FHA Credit Score Requirement , home buyers with less than perfect credit and credit history should think about fixing your credit to qualify for FHA Loan way prior to buying or shopping a home. Credit repair does work and not every mortgage borrower may need extensive credit repair to refresh their overall credit scores and credit report. Just a few tricks of the trade can easily boost a consumer’s credit scores substantially. There are credit repair companies that can actually delete public records such as bankruptcies, foreclosures, judgments, tax liens, child support payments/alimony payments, and all other types of derogatory information off one’s credit report. We will discuss whether or not this task of removing public records is a recommended way of fixing your credit to qualify for FHA Loan in a later paragraph of this blog. FHA requires a minimum credit score of 580 FICO for a home buyer to qualify for a 3.5% down payment FHA insured home purchase loan. However, home buyers should try to optimize and get the highest credit score possible because lower credit scores means tougher mortgage underwriting requirements and also means higher mortgage rates. Mortgage lenders view borrowers with lower credit scores as higher risk borrowers so the pricing adjustments or mortgage rates are higher for those with lower credit scores. Most mortgage companies will also require verification of rent by borrowers who have under 620 FICO Credit Scores . A verification of rent is only valid if the renter has been paying their rental payments with a check and can provide 12 months canceled checks that he or she has paid the landlord and needs to have been timely. One gap where the renter has paid the landlord with cash or partial check and partial cash will null and void the verification of rent. In lieu of canceled checks, the verification of rent can also be valid if the renter has been renting their home or apartment through a property management company. The VOR form completed by the property manager of the property management company can be used in lieu of the 12 months canceled checks and/or bank statements of the renter.

Fixing Your Credit To Qualify For FHA Loan: Debt To Income Ratio Requirements

Another correlation that credit scores have on FHA Loans is the debt to income ratios required with credit scores under 620 FICO. 2016 FHA Guidelines On Debt To Income Ratios limits the maximum debt to income ratio to 43% DTI for FHA Borrowers with credit scores of under 620 FICO credit scores whereas FHA borrowers with credit scores of 620 FICO or higher can go up to 56.9% DTI. Mortgage rates on borrowers with credit scores of under 620 FICO are substantially higher than those with credit scores of higher than 620 FICO. To get the best FHA mortgage rates, the FHA borrower should have credit scores of higher than 640 FICO.

Fixing Your Credit To Qualify For FHA Loan Takes Time

Fixing your credit to qualify for FHA Loan does take time and cannot be done overnight. Simply by paying down all of your credit card balances to a 20% of your credit card limits will maximize your credit scores. A fully maxed out credit card will devastate your credit scores so the key is to have the most available credit limit available on all of your credit cards. Make sure that you are not late with any monthly minimum payments. One late payment on your credit report will plummet your credit scores. Do not apply for new credit unless you absolutely have to. Each hard credit inquiry will drop your credit scores by 5 FICO points and sometimes even more. Do not co-sign for anyone because this will affect your debt to income ratios.

Do not do any credit disputes on any derogatory credit items. FHA has strict guidelines on credit disputes during the mortgage process where you cannot have any credit disputes on non-medical collection accounts with balances that are a total outstanding balance of $2,000 or more. You cannot have any credit disputes on any charge offs during the mortgage approval process. You are allowed to have credit disputes on medical collection accounts with outstanding unpaid balances as well as derogatory non-medical credit items with zero balances.

Fixing Your Credit To Qualify For FHA Loan: Credit Repair

Credit repair does work and there are many reputable credit repair consultants who I have personally witnessed delete negative derogatory credit items such as outstanding collection accounts, charge offs, bankruptcies, foreclosures, deed in lieu of foreclosures, short sales, late payments, tax liens, judgments, credit inquiries, and other derogatory credit items off a consumer’s credit report. Hiring a credit repair consultant is an option a consumer has and every credit repair company has a different price tag for their services. Credit repair does work and can be extremely helpful in fixing your credit to qualify for FHA Loan, however, if a credit repair consultant removes public records such as bankruptcies, foreclosures, tax liens, child support, judgments, and other public records, mortgage companies will find out because all mortgage lenders will use Data Verify and/or Lexis Nexis to do a third party public search on every borrower prior to closing. For example, say a borrower had a $100,000 judgment and the credit repair consultant who he or she hired had that judgment removed off all of the borrower’s three credit report and now there are no signs of the borrower having a judgment. Unfortunately, the judgment will show up when the mortgage lender does a third party public records search through Lexis Nexis and/or Data Verify and that judgment needs to be addressed. Same with bankruptcies. A savvy credit repair consultant can delete a bankruptcy or foreclosure off a borrower’s credit report through legal means and the bankruptcy and/or foreclosures will be totally off all of the borrower’s three credit reports. However, bankruptcies and foreclosures will appear when the third party vendor will do a third party public records search. So if a home buyer thinks that they can get the mandatory waiting period waived by just getting their bankruptcies and judgments removed off their credit report, they are wrong because the mortgage lender will find out.

Deleting outstanding collection accounts, charge off accounts, and late payments are no problem because nobody can find out the removal of these negative derogatory credit items since they are not a public record. If you have bad credit and need to qualify for a FHA Loan, please contact me at 262-716-8151 or email me at gcho@gustancho.com. I am available 7 days a week, weekends, evenings, and holidays to take your phone calls and answer all of your questions and assist you in fixing your credit to qualify for FHA Loan. I can also refer you to the best of the best credit repair consultants in the nation.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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