How Can I Improve Credit Scores To Qualify For FHA Loan

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This ARTICLE On How Can I Improve Credit Scores To Qualify For FHA Loan Was PUBLISHED On April 19th, 2020

How Can I Improve Credit Scores To Qualify For FHA Loan

Advice On How Can I Improve Credit Scores To Qualify For FHA Loan

Many people have gone through periods of bad credit due to unemployment, divorce, medical reasons, death in the family, or other personal reasons.

  • Americans are hard-working folks and nobody blows off paying their bills intentionally
  • However, extenuating circumstances happen such as loss of employment where their income sources suddenly stop where they cannot meet their minimum monthly debt payments

Unfortunately, when consumers miss making their minimum scheduled monthly minimum payments to their creditors, the creditors will report their late payments to the three credit bureaus;

  • Experian
  • Equifax
  • Transunion

In this article, we will discuss and cover How Can I Improve Credit Scores To Qualify For FHA Loan.

Negative Effects Of Late Payments

One 30-day late payment can plummet a person’s credit score:

  • The worst part of this is that the late payment history will stay on the consumer’s credit report for a period of 7 years
  • There is a light at the end of the tunnel with having late payments
  • Although a recent late payment will plummet the consumer’s credit scores by 50 FICO points or more, the consumer’s credit scores will gradually go back up as the late payment history on their credit report ages
  • The older the late payment history gets, the less impact that late payment will have on the consumer’s credit report

Eventually, that late payment history will not have any impact on the consumer’s credit scores.

Qualifying For FHA Home Loans With Lower Credit Scores And Bad Credit

Home Buyers with low credit scores and prior bad credit can qualify for an FHA loan.

  • However, FHA, as well as other mortgage loan programs, do have minimum credit scores requirements
  • Minimum credit scores to qualify for a 3.5% down payment home purchase FHA Loan is 580 FICO
  • Home Buyers with credit scores under 580 FICO can qualify for an FHA loan
  • However, FHA requires 10% down payment on all Borrowers who have credit scores under 580 FICO instead of the standard 3.5% down
  • Just because a borrower has credit scores of under 580 FICO does not mean that he or she will not qualify for an FHA loan with 3.5% down payment

There are ways of improving credit scores and your loan officer can help you in giving you advice of a few quick tricks of the trade.

Improve Credit Scores To Qualify For FHA Loan With High Debt To Income Ratio Issues

How to improve your credit results to qualify for an FHA loan with a high debt-to-income ratio

There are times where borrowers may qualify for a 3.5% down payment home purchase FHA Loan:

  • But may need to improve their credit scores
  • This is because the FHA Guidelines On Debt To Income Ratios requirements on borrowers with credit scores under 620 FICO
  • If you have credit scores of under 620 FICO, the maximum debt to income ratios allowed under FHA Guidelines is 43% DTI
  • However, if you have credit scores of at least 620 FICO or higher, debt to income ratio limit goes up to 56.9% DTI
  • Borrowers with higher debt to income ratios with lower credit scores may need to improve their credit scores so their credit scores are at least 620 FICO

This is so they can take advantage of the higher debt to income ratio caps allowed by FHA.

Improve Credit Scores To Qualify For FHA Loan When Verification Of Rent Is Required

There are times where borrowers need to improve credit scores to qualify for FHA Loan if their credit scores are under 620 the findings on the Automated Underwriting System ask that rental verification.

  • Rental Verification is only valid if the renter can provide 12 months canceled checks that have been paid with a bank check to the landlord
  • Or by providing 12 months bank statements from the renter to the landlord where the bank statements show the exact amount of rent leaving the renter’s bank account and going into the landlord’s bank account
  • Cash payment to the landlord and a paid receipt does not count as verification of rent
  • Verification Of Rent, or VOR, is normally not required for borrowers with credit scores of at least 620 FICO or higher
  • There are many home buyers who qualify for an FHA loan with credit scores of under 620 FICO
  • However, they cannot provide rental verification because they either pay their rental payment with cash or are living rent-free with family
  • Borrowers with credit scores under 620 FICO and no rental verification may need to improve credit scores to qualify for FHA Loan

Our loan officers will help borrowers boost their credit scores to at least 620 FICO.

Tips On How To Improve Credit Scores To Qualify For FHA Loan

If you do not qualify for an FHA loan because you do not meet the minimum credit score requirements, we can help:

  • We can help boost your credit scores to over 620 FICO credit scores
  • By increasing your credit scores to 620, you can get the maximum debt to income ratios allowed by HUD, the parent of FHA

If the automated underwriting system requests verification of rent, there are several quick tips on how to improve credit scores to get credit scores to over 620.

Negative Effects Of Maxed Out Credit Card Balances

What are the negative effects of maximum credit card balances?

Maxed out revolving credit is one of the main reasons why consumer’s have lower credit scores.

  • If you have maxed out credit cards, try bringing the balance below 10% balance of your credit limit
  • Paying down high balance credit cards will definitely boost your credit scores instantly
  • If you do not have credit tradelines, you can see if you can add yourself on to someone’s credit card account as an authorized user on their revolving credit card account
  • You need to make sure that the main user has perfect payment history and a low credit card balance or else it will end up hurting you than helping you
  • If your credit scores are under 700 FICO, do not bother applying for unsecured credit cards

This is because chances are that you will not get approved and a hard credit inquiry will drop your credit scores.

Getting Secured Credit Cards To Re-Establish Credit

If you have no credit or little credit, see if you can get three to five secured credit cards with a $500 minimum credit limit:

  • Secured credit cards require that you make a deposit to the credit card company and they will grant you a credit limit equivalent to the amount of deposit you make
  • Make sure that the secured credit card company reports to all three credit reporting agencies
  • Secured credit cards are exactly like unsecured credit cards
  • You need to make minimum monthly payments and they will report your payment history to the credit reporting agencies, even late payment history

Borrowers with lower credit scores and need to qualify for an FHA loan, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com. We available 7 days a week, evenings, weekends, and holidays to take your calls and answer any of your questions. Unlike other mortgage lenders, I work with borrowers who do not currently qualify and help them improve credit scores to qualify for FHA Loan instead of telling them to come back once their credit scores are up. It is not if you can get an FHA loan but when you can get an FHA loan.

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