Timing Counts With Your FHA Home Loan Application
The kind of timing we’re discussing here is when to apply for new credit when you’re actively planning a home loan.
Many financial bloggers, credit report sites, and lending blogs discuss an important issue about managing your credit properly during the home loan application process. One of the best pieces of advice from many of these sites?
Applying for New Credit
Don't apply for a car loan at the same time or just before a home loan. And you really should avoid applying for ANY type of new credit when you are about to fill out an FHA loan application.
One reason is that your debt-to-income ratio can be negatively affected by any new line of credit, and your lender may be required to consider that when deciding whether or not to approve your mortgage loan.
But that’s not the overriding factor when dispensing this advice. The lender who finds new credit applications in your credit report dated around the same time as your loan application may decide you aren’t careful enough with your potential debt.
Hard Credit Inquiries
Add to that the fact that you will get a hard credit inquiry on a new line of credit that potentially lowers your FICO scores a bit; some borrowers already worry they won’t be able to qualify for the lowest down payment due to FICO score issues; applying for new credit will not help in this area.
If your FICO score goes down because it was affected by another credit inquiry other than your home loan, the loan officer will be forced to make a decision on loan approval based on the newly lowered score.
And it’s not safe to assume that once you are approved for a home loan that you are now free to apply for new credit; your lender will pull your credit information multiple times during the home loan process. That second (or third) credit check may be an automated process in some cases, or may require the lender to personally request another look at the credit reports.
Some borrowers may have the loan denied because their finances have changed; new debt or lower FICO scores can affect your chances at getting to closing day even after the loan is initially approved. Take steps to ensure your finances and credit scores don’t change dramatically before closing day, to include not applying for new credit until after you have moved into the home.
What Is an FHA Loan?
Using an FHA Loan Calculator
Meeting FHA Loan Guidelines Improves Your Chances
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