Credit Tips When You Apply For a FHA Loan is a post from: FHA,VA and Conventional Home Loans in all 50 States

I wanted to revisit what to pay attention to with respect to your credit a when you apply for a FHA Loan.   It is really a shame that many of the home buyers I talk to have everything they need to qualify for the house of their dreams (income, down payment, job history), but small issues on their credit are keeping their score down and preventing them from qualifying for a home loan.

Here are some of the most common items I see that really hurt borrowers credit scores:

• Late payments on credit cards
• Late payment on auto loans
• Late payments on student loans
• Past collections on unpaid accounts

There are many other things to consider when managing your credit for a home purchase discussed in depth in a previous post http://socalfhahomeloans.com/page/8/.  Such as keeping your credit card balances at <30% of your credit limit, not applying for new credit during the loan process and keeping at least 4 lines of credit open (the older the credit line the better).  But the four bullet points above are the most common credit issues that cause home buyers credit scores to plummet to the point they cannot obtain a home loan.

Some tips to avoid the four credit killers above:

• Set your credit cards and auto loans up on an auto payment system that draws from your checking every month.  Put paying your bills on auto pilot!
• Be EXTRA vigilant paying bills that show up on your credit (auto, credit card, student loans).  It is even more important to pay these on time then say your cell phone bill or your cable TV bill.  Being late on your cell phone or cable TV bill will not affect your credit score, but being late on your auto/credit cards and student loans will cause MAJOR DAMAGE to your score
• Even if you don’t set you auto/credit card/student loans to be automatically deducted from your checking account every month, set yourself up to pay them online.  It can be easier if you move or travel often than relying on these creditors to mail you your statement every month.
• Do not let past due account go to collection.  Try to nip things in bud if there is a problem, just communicate with your creditors and you may be able to work something out.

This does not necessarily affect your credit score, but I wanted to point out that I see so many buyers unable to qualify because they have a large auto loan payment.  If you are planning on buying a car, WAIT until after you have closed on your home loan.  A $50o/mo car payment can just kill a buyer’s debt-to-income ratio and cause them to qualify for a much smaller house then they would like.

So to summarize, commit to never, ever, ever being late on credit cards, auto loans or student loans.  Be obsessive about it.  Refuse to let it happen.  Because it really makes me sad to see a family not able to buy the house of their dreams ONLY because they got busy one month and were 30 days late on a small credit card.

Feel free to call or email if you have any questions about getting qualified for a home loan.

Warm Regards,

Rob Chomentowski

Sr. Loan Officer

858-922-7899 (direct)

rob@affinity-financial.com

Related posts:

1. Credit Score Tips For FHA Home Loans
2. FHA Loans for Borrowers Who Lack Credit Scores

FHA Loans for Borrowers Who Lack Credit Scores is a post from: FHA,VA and Conventional Home Loans in all 50 States

The credit scoring system requires a person have active trade lines reporting so the 3 credit bureau’s Experian, Equifax and Trans Union can produce credit scores for that person.   These trade lines are usually loans or revolving credit accounts.  Such as auto loans, student loans and credit cards.  But there are some people out there that would like to buy a house but they do not currently have any trade lines.  They do not have a auto loan, credit card or other loan that reports to the credit bureau’s.  Well this is OK, because FHA loans allow something called “non-traditional” credit.

With a non-traditional credit borrower we can build a credit report for that borrower by other means.  What we will do is ask the borrower for the the following items:

1. Verification that rent is being paid for the last 12 months

2. Verification that utility bills are being paid on time the last 12 months (gas, electric, etc..)

3. Verification telephone service has been paid on time the last 12 months

4. Verification the cable TV bill has been paid on time the last 12 months

We will send a verification to your landlord to verify rent payments have been paid on time the last 12 months.  With items 2,3 and 4, you can call up the provider of these services and ask for a letter stating that you have paid your bill on time the last 12 months.   Then we will take these items to our credit services company and have them produce a “non-traditional” credit report.  This will allow us to get you approved for a 3.5% down FHA home loan.

If you do not have all of the 4 above credit sources.  We can also use 12 month payment verification on the following items to help produce a non-traditional credit report for you:

• Auto or medical insurance accounts
• Cell phone accounts
• Child care service
• Internet service
• Personal loans from individuals supported by cancelled checks

So if you are concerned that you won’t be able to qualify for a home loan because you lack a credit score, don’t worry, there is still a great chance you can get that loan.   However to clarify, non-traditional credit as discussed will not help if you if you already have poor credit.  This method is only for people who have “no” credit or insufficient credit.

Please feel free to call or email if you have any questions or would like to get a free pre-approval for a home loan.

Warm Regards,

Rob Chomentowski

rob@affinity-financial.com

858-922-7899

Related posts:

1. FHA Loans For Self-Employed Borrowers