How to Maximize Your Credit Scores

Credit scores determine your minimum down payment for FHA home loans:

  • With a credit score of at least 580, you can apply for an FHA mortgage with 3.5% down.
  • You’ll need at least 10% down with a credit score of 500-579.
  • This is no guarantee of loan approval at those credit scores.

Note that there is a difference between having a low credit score and having a bad credit history. The FHA generally requires at least 12 months of good repayment history without derogatory items to approve a mortgage application.

Prequalify for an FHA home loan in about five minutes.

Higher Credit Scores Equals Lower Down Payment

The minimum credit score required to qualify for a 3.5% down payment FHA loan is 580. Borrowers can qualify for an FHA loan with scores as low as 500 with 10% down. However, a low credit score is okay but recent bad credit history is not. Here’s how to clean up your credit before applying for an FHA home loan.

How to Maximize Your Credit Scores

Credit scores can definitely be improved in a short period of time. Credit scores can fluctuate every month.

  • Pay down credit cards to 10% of the credit limit
  • Add new credit such as secured credit cards
  • Be an authorized user on a family member and/or close friend’s credit cards

Credit Scores And Mortgage Rates

Credit score ranges from a low to 300 to a high of 850:

  • 740+ gets you the best mortgage rates and lowest fees.
  • Jumbo mortgage lenders often set minimum credit scores at 700
  • FHA minimum scores are very low but the average credit score for an FHA-approved borrower is 679.

All lenders have minimum credit score requirements for loan programs.

Importance Of Credit Scores To Qualify For FHA Loans

improve credit score

A consumer’s FICO credit score incorporates the following:

  • Payment history: 35%
  • Credit utilization: 30%
  • Length of credit history: 15%
  • Age of accounts: 10%
  • Mix of credit types: 10%

Don’t Pay Off Old Collection Accounts

Borrowers with older collection accounts, just leave them alone. Mortgage borrowers do not need credit repair to qualify for FHA Loans.

Any collection accounts with balances that are two years old or older hardly have an impact on credit scores. Partially paying an older collection account or even contacting the agency can reactivate the account. This will hurt your credit history which weights recent activity more heavily than older entries.

Credit bureaus treat this reactivation as if it were a new collection account. It will trigger a fresh derogatory negative item and can potentially drop credit scores. Homebuyers can qualify for a mortgage with open and unpaid collection accounts.

If you have to pay off an old collection, request a “pay for delete.” Pay for delete means paying the account in exchange for removal of the entry from collection agencies. Medical collections must be deleted once you pay the account. Other collections are negotiable.

Judgments Need to Be Removed or Settled

Borrowers cannot have an unsatisfied judgment on the credit reports and qualify for a mortgage unless they pay the judgment in full, settle for less with the plaintiff, or present a court-approved payment plan. They must have been making payments on the plan for at least three months.

You can pay your judgment at closing. You will have to show the lender that you have funds to pay the judgment in addition to your closing costs and down payment. Borrowers can qualify for FHA Loans with tax liens as well. The same guidelines apply to outstanding tax liens as it does judgments.

Qualifying For FHA Loan 

How to qualify for an FHA loan with a lender without overlays

Borrowers who do not meet the minimum credit score requirement to qualify for an FHA loan can try to boost their credit scores. The team at Gustan Cho Associates is expert in helping borrowers maximize their credit scores so they can qualify for an FHA loan. Gustan Cho Associates is a lender with no overlays, which makes qualifying for an FHA home loan much easier.

Contact an expert for FHA loan advice now. 

Leave a comment