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FHA loans are one of the best options for young, first-time home buyers who have not had as much time to save for a large down payment or establish a high credit score.

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How to Get Credit-Ready for a Mortgage

How to Get Credit-Ready for a Mortgage

For most people, buying a home is the most expensive purchase they will ever make in their lives, and that can be a scary thought. You want to make sure that everything goes smoothly and that you get the best interest rate you possibly can. A big way to help in that is to be on top of your credit score and get it ready before applying for a mortgage.

The FHA helps first-time and low-income homebuyers by having lower down payment requirements for its borrowers. Additionally, it has a minimum credit score requirement of 580. Despite this lower eligibility criteria, it is important to remember that FHA-approved lenders can set their own requirements, known as “overlays,” for borrowers to qualify.

By working on improving your credit score, you can save yourself the stress of possibly not qualifying for a loan or getting a higher interest rate. Here are a few things you can get started on to help. 

Think Ahead

Being proactive with your credit score will benefit you immensely when applying for a mortgage. Improving your credit requires time and patience, and it will not happen overnight. If you know you will be shopping for a house in the next couple of years, start working on your credit NOW. It gives you more time to move your score up to a higher credit threshold, which may help you get a lower interest rate. The more time you have to bump up your scores, the more money you have a chance to save.

You Can Only Fix What You Know

Once you know what your credit score is, you can get to work on improving it. It is easy to get a hold of your scores and go over any issues you may have. Under the Fair Credit Reporting Act, everyone has a right to request their own credit report from a credit bureau to review it. This allows borrowers to dispute any errors by writing to the relevant credit bureau, which must investigate the dispute within 30 days. 

Be Punctual with Payments 

Payment history is a major consideration for credit bureaus when calculating your credit score. In fact, it makes up 35% of your score, making it the most important factor of your credit. The later you are on your payments, the more it hurts your credit score. If you have recent late payments on your credit reports, it is usually a good idea to let some time pass before you apply for a mortgage. It also reflects well on your credit report when your account status is updated to "paid in full." 

Do Not Open New Lines of Credit

If you are in the process of improving on a low credit score, avoid making any new credit applications. When you apply for a new line of credit, lenders perform what is called a “hard inquiry,” which itself can affect your score. While there might not be a hard inquiry made each time, there is a chance it could. Several hard inquiries in a short timeframe sends a red flag to lenders who might assume that you may be mismanaging your finances.

While working on your improving your credit score, it is worth remembering that all lenders will NOT treat your application the same. The home loan interest rates you see listed online or at your local bank are not the same rates offered to every single borrower. Along with other factors, your credit score affects the number your lender offers, and one lender may judge these factors differently than another. It is always best to shop around for mortgages the way you will for your house and get the best deal for you.


Homebuyers Benefit From the Work Done by Fannie Mae
HUD 4000.1 is Sometimes Called the FHA Handbook
Credit History Is Presented as Your FICO Score
See Your Credit Scores From All 3 Bureaus
See Your Credit Scores From All 3 Bureaus

More FHA Loan Articles

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While an FHA home loan is a good option for first-time homebuyers who don’t have enough money saved for a large down payment, it’s important to understand the ins and outs of the FHA guidelines, and what it takes to get approved as a borrower. 

When Buying with an FHA Loan, Don't Skip the Home Inspection

This wait isn’t easy when you've been shopping for a new home. But getting a home inspection is a crucial step, and not one you should consider skipping. Make sure you hire a reliable home inspector, wait for your inspection report, and watch out for these red flags. 

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With historically low interest rates, the mortgage industry has seen a sharp uptick in refinances. Taking advantage of the current market might be in your best interest and could lower your monthly payment significantly. Don’t forget that refinancing a mortgage comes with closing costs.

Things to Know About Making an FHA Loan Down Payment

Many first-time homebuyers need some help understanding and navigating the ins and outs of the mortgage process, and down payments are an essential part of that. A down payment is an upfront installment made on a large purchase while the remainder is paid off with a loan.

Let's Compare FHA Loans to VA, USDA, and Conventional Mortgages

Buying and financing a home is complicated and can become overwhelming. It's important for you to stay informed, and know what your options are. So, start with the basics and read about the four different mortgage types available before approaching a lender.

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