Fixing Your Credit Before You Apply for an FHA Mortgage
The most important thing you can give yourself in the early days of your home loan planning stages? TIME. With enough time you can raise FiCO scores and improve the overall quality of your credit report if you follow the recommended steps suggested by credit bureaus like Equifax and TransUnion.
Why do you need a lot of time? Because resolving any problems requires additional steps like filing complaints and having your claims investigated. That is one reason why it’s a bad idea to START working on your credit at the same time as you are trying to apply for a loan.
Another reason to give yourself plenty of time? It takes time for credit reports to notice the work you’re putting in such as on-time payments and lowering your credit card balances. You won’t see the results overnight.
There may be entries in your report related to identity theft and in such cases, you’ll need to file police reports and other documentation, and these processes can take a long time.
Challenging these credit report errors and other issues can be complicated by the fact that you must deal with three credit reporting agencies. To make things more complex, these agencies compete with one another and aren’t likely to share data. Don’t assume that what is fixed on one credit report translates into being fixed on ALL your credit reports.
It’s also a bad idea to assume your reports will update in the same general time frames. Or with the same data. It will be necessary, and yes, inconvenient, to ensure your credit reports from Experian, Equifax, and TransUnion are all reporting the same accurate information.
Raising FICO scores can start with the simple commitment to on-time, every time payments on all financial obligations. Set a minimum goal of 12 months with no late or missed payments on your record. Also, try to put as much time between your last credit application and your new home loan application as possible.
FICO scores, as you can see from the above, are not the sole determining factor in FHA home loan approval; your credit use, your credit history, the record of on-time payments, as well as any other payment or financial responsibility-type documentation in your credit report.
Some borrowers do not realize that their credit reports are reviewed or are likely to be reviewed more than once during the home loan process.
Once you start the loan application process your credit reports are “fair game” for the lender to review all the way until closing day. Any major negative changes to your credit before your closing day can seriously jeopardize your ability to close the deal.
Do What You Can to Avoid Foreclosure
Homes Financed With FHA Loans Must Be Owner Occupied
FHA Programs for First-Time Homebuyers
Do you know what's on your credit report?
Learn what your score means.