This BLOG On Raise Credit Scores To Qualify For Mortgage And Get Best Rates Was UPDATED And PUBLISHED On February 10th, 2020
Many home buyers ask How To Raise Credit Scores To Qualify For Mortgage? Borrowers need a specific minimum credit score to qualify for a mortgage.
For example, here are the minimum credit score requirements to qualify for mortgage loan programs:
- FHA Guidelines On Credit Scores require that borrowers need a 580 Credit Score to qualify for a home 3.5% down payment home purchase loan
- FHA has debt to income ratio requirements with credit scores
- FHA limits the debt to income ratio to a maximum 43% debt to income ratio cap for borrowers with under 620 credit scores
- Borrowers with at least a 620 Credit Score or higher can go up to a 56.9% debt to income ratio
- Those with higher debt to income ratios need to raise credit scores to qualify for a mortgage with FHA
- VA Loans does not have a minimum credit score requirement
- Fannie Mae and Freddie Mac require credit scores of at least 620 FICO to qualify for Conventional Loans
- Most Jumbo Lenders require credit scores of at least 700 FICO
- Portfolio Lenders will require credit scores of at least 680 FICO
Two of the most important factors in qualifying for a mortgage are the following:
- Documented verified qualified income
- Credit Scores
In this article, we will discuss and cover how to raise credit scores to qualify for a mortgage.
Qualifying For Home Loans Today
As long as borrowers have documented verified qualified income and have low credit scores, there is hope in qualifying for a mortgage loan.
- There are quick fixes on how to raise credit scores to qualify for mortgage
- However, there are no quick fixes in raising documented verified qualified income
- This holds true unless borrowers get a raise, promotion, or change to a better paying job
- However, credit scores fluctuate monthly
On this BLOG, we are going to show our viewers some quick fixes on how to raise credit scores to qualify for mortgage.
Adding New Credit Is Great Way To Raise Credit Scores To Qualify For Mortgage
I run into many folks who come to me for a mortgage who did not have any late payments and pay all of their bills on time but just cannot get to a 580 FICO Credit Score.
- A 580 Credit Score is what is required for a 3.5% down payment FHA home purchase loan
- One of the reasons why these folks do not have a 580 FICO credit score is because they have no active revolving credit tradelines
Here is how they can instantly boost their credit scores:
- Secured Credit Cards
- Adding Yourself On As Authorized User
- Credit Disputes
- Paying Down Credit Card Balances
Secured Credit Cards To Raise Credit Scores To Qualify For Mortgage
Get three credit secured credit cards with at least a $500 credit limit.
- The way secured credit cards work is consumers make a deposit with the secured credit card provider
- The credit card provider will get consumer a credit limit equivalent to the amount of deposit
- There is a fee for this as well as an annual membership fee as well
- This fee and cost is well worth its weight in gold
- Consumers are doing this not for getting a credit card but for them to establish their credit
- Do not ever be late on any monthly payment
- This is because secured credit card companies will report late payments on the credit report
- Those who are timely on monthly payments for six months to a year, the secured credit card company will raise credit limit without asking credit card holder for any additional deposit
- This is the best and easiest way of establishing credit and raising credit scores
Those with no active revolving credit, adding each secured credit card with at least a $500 credit limit can boost credit scores by at least 20 points for each card.
Adding Yourself On As Authorized Credit Card User To Raise Credit Scores To Qualify For Mortgage
Many credit repair companies sell credit tradelines.
- A credit tradeline is a revolving credit card account that has been seasoned for at least 12 months and is a very positive factor for a borrower
- It shows past on-time payment history
- Lenders view a past timely payment credit history as an indication that the borrower will be timely on future payments
- The way credit repair companies sell credit tradelines to borrowers
- Way this works is by adding the borrower to their credit card accounts with large credit card limits and low credit balances
This strategy used to work but no longer works because the credit bureaus caught on.
Adding As Authorized Credit Card User
Adding yourself to another person’s credit card account that has a different address no longer boosts credit scores.
- It does give you the credit tradelines
- But will not greatly affect credit scores
- However, adding yourself on to another person’s credit card who that person lives with you and share the same address will help raise credit scores
- Consumers can drastically boost credit scores
- If you can add on yourself as an authorized user to a spouse’s credit card, son or daughter’s credit card, or parent’s credit cards as an authorized user, this will raise credit scores to qualify for mortgage
- Remember that the main user of the credit card and you need to have the same address in order for this strategy to work
- In order for this strategy to work, the main card holder needs to never have been late on their credit card payments and have a very low credit card balance
Lower than 10% balance compared to the credit card limit.
Credit Disputes As Strategy To Raise Credit Scores To Qualify For Mortgage
There are strict rules and guidelines on credit disputes during mortgage process , especially with FHA Loans. Here are the Guidelines with credit disputes during the mortgage process:
- Cannot have credit disputes on non-medical collection accounts if the total outstanding unpaid balance totals greater than $1,000
- Cannot have any credit disputes on charge off accounts
- Borrowers are allowed to have credit disputes on non-medical collection accounts on items that have zero balances
- Can have credit disputes on medical collections no matter how much the outstanding unpaid balance
Why Can’t You Have Credit Disputes During Mortgage Process?
The main reason consumers cannot have credit disputes is due to the following:
- Once the verbiage Consumer Disputes Account is on the collection account and/or derogatory item in question, the credit bureaus will automatically take that collection account and/or derogatory account off the FICO credit scoring model
- So that derogatory item is not counted in factoring your credit scores
- Bottom line is that once a credit dispute is triggered, credit scores will go up
- This is because the collection account and/or derogatory account does not exist under the credit scoring formula
- However, once consumers retract credit dispute or disputes, the derogatory item is factored back
- Therefore credit scores will plummet
- Retracting credit disputes will drop credit scores
Lenders should not issue any pre-approval letters unless all credit disputes have been retracted.
Disputing Medical Collections To Raise Credit Scores To Qualify For Mortgage
Here is a quick trick of the trade to temporarily boost your credit scores by disputing medical collections and non-medical collection accounts if your collection account balances are under $1,000 or zero balances:
- Consumers with recent medical collection accounts can dispute them
- Credit scores will go up
- This is because the credit bureaus will take those collections out of factoring consumer credit scores
- Medical collections are exempt from credit disputes
- Borrowers are allowed to dispute medical collection accounts
- Borrowers with non-medical collection accounts with aggregate balances of under $1,000 can dispute those
- Credit bureaus will take those negative items off the factoring of credit scores
- Credit scores will go up
- Remember that these are temporary fixes
- Once those derogatory items are verified by the creditor or collection agency or end up retracting the credit disputes credit scores will go back down
- Lenders will use the middle credit score
- The credit score that they use with the submission of borrowers will be the middle credit score
Middle credit scores will be used throughout the mortgage process and are good for 120 days.
Paying Down Credit Card Balances
Maxed out credit cards will plummet credit scores. Make sure credit card balances are at or below 10% of the credit card limit. Maxed out credit cards can plummet credit scores by more than 100 points. The amount of drop is depending on how many of maxed out credit cards consumers have. Paying down credit card balances will be a quick fix to raise credit scores to qualify for mortgage.
Borrowers lower credit scores and need advice on how to raise credit scores to qualify for mortgage, please contact Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at firstname.lastname@example.org. We are available 7 days a week, evenings, weekends, and holidays.