This BLOG On Improving Credit Scores To Qualify For Mortgage With Best Rates Was PUBLISHED On June 28th, 2019
Current mortgage rates are at a three-year low.
- If you are a home buyer planning on buying a home in the near future but have low credit scores, you should try improving credit scores so you can get the best possible mortgage rates
- High credit scores mean low mortgage rates and better terms
- Improving credit scores can be very easy depending on your credit profile
Government loan programs such as FHA, VA, and USDA loans permit lower credit score borrowers to qualify for these loans. However, if you want to qualify for a conventional loan with low mortgage rates, you need high credit scores
In this blog, we will discuss Improving Credit Scores To Qualify For Mortgage With Best Rates.
There are thousands of credit repair companies in the United States and millions of consumers hire credit repair companies thinking that they will be the solution to great credit and high credit scores.
- Not everyone needs credit repair
- Many times credit repair can do more damage than good when you are preparing yourself to qualify for a mortgage loan
- You can have prior bad credit and still qualify for a mortgage loan
- If you have an old charge off collection accounts or collection accounts with zero balances or medical collection accounts, it will not affect your credit scores if they are more than 2 years old
- Lenders with no lender overlays like myself do not care about a charge off accounts, collection accounts with zero balances, or medical accounts with balances
- These are exempt and if a lender wants you to pay off an older collection account or medical collection account with a balance, that is not FHA lending guidelines and are their own guidelines
If you run into a situation where a lender asks you to pay off an older collection account, go somewhere else or call us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at email@example.com.
Credit Disputes During The Mortgage Process
As mentioned in the above paragraph, sometimes hiring a credit repair company may do more damage than good. Credit disputes can be deal killers when it comes to qualifying for a mortgage loan.
- You cannot have credit disputes on collection accounts with a balance on non-medical collection accounts
- You need to retract the dispute in order for you to proceed with the mortgage loan approval process
- Unfortunately, when you retract the credit dispute, it will lower your credit scores, sometimes I have seen consumer credit scores plummet by more than 80 points
- It is best not to dispute derogatory collection accounts with small unpaid balances
- HUD, the parent of FHA, does not require you to pay off unpaid collection accounts to qualify for a mortgage loan
- If your aggregate unpaid collection balance is greater than $2,000, then 5% of the unpaid collection balance will be calculated towards figuring out your debt to income ratios
- You do not have to pay or enter into a payment agreement
- The 5% of the unpaid balance will just be used for qualifying purposes
Medical collection disputes and zero balance non-medical disputes are exempt and do not have to be retracted.
Improving Your Credit Scores
Improving your credit scores can be easy, depending on your credit profile.
- If you have little or no credit a prior bad credit, getting 3 to 5 secured credit cards will skyrocket your credit scores
- A secured credit card is when you place a deposit to a credit card company and the credit card company will issue you a credit card for the same amount of the deposit
- A secured credit card will report to all three credit reporting agencies
- It is no different than an unsecured credit card
- If you are late on a secured credit card monthly payment, the credit card company will report you late on the credit bureaus and your credit scores will drop and you will damage your credit
- Each secured credit card can boost your credit scores by 20 plus FICO points
Having a high credit card balance will lower your credit scores. If you are planning on qualifying for a mortgage loan, please pay down all of your credit cards and revolving credit accounts to at least 10% of your credit limit to maximize your credit scores.