Home Purchasing Guidelines and your Credit Score
For most people the biggest and most important investment that they will experience in their lifetime is the purchase of a new home. Few people take the time however to prepare for this purchase to ensure that things go as well as they should. One of the main categories for purchasing a home is the minimum credit score requirement. It used to be that mortgage lenders were much more lenient about the score guidelines before the housing market crash of 2008. Nowadays the score guidelines are more stringent and normally do not go below a 600 credit score and in more and more cases 620-640 is the minimum requirement.
As of April 2012 FHA has released information to lenders informing them that beginning July 2012 consumers will no longer be able to show more than $1000 in collections TOTAL on their credit report. If this guidelines ends up going through this is going to be a HUGE deal breaker. Currently there is still time to begin improving your credit before these guidelines take effect but time is definitely of the essence.
Here are 3 important items to keep in mind when preparing to purchase a home:
- Medical collections are a “Catch 22”
As of today the balance from a medical collection does not count against you as debt to income when attempting to purchase a home…HOWEVER the actual medical collection itself DOES count against your credit and credit score and can lower your mortgage FICO score and thus put you into a category where you are not approved for the loan. If the FHA changes go into effect, eve the medical debt itself will be counted under the $1000 or less requirement and this is one of the biggest reasons that obtaining an FHA loan will be very difficult.
- Credit card balances play a huge role…
If you have a credit card that is maxed out or close to its credit limit, be prepared to pay it down if you want to purchase a home.This is not the case for everyone depending upon the situation but it is very likely that this is something that will need attention. FICO puts 30% weight on this category and this can be the difference between a 590 and a 620 credit score in some cases. Always remember to pay down revolving credit balances down to 19% in relation to their limits.
- Be sure to have some open credit lines…
It is also equally as important to note that having at least 1-3 open lines of good credit in good standing are vitally essential to obtaining a mortgage loan. Even with credit repair, a FICO score will likely not go up to where it needs to go without the assistance of some positive credit to help it get there. Visit our resources page for information on secured cards with 100% approval @ www.c360services.com.
Follow these 3 guidelines to help get your credit file moving in the right direction. If there are negative items on your credit report such as collections, public records, medical collections, etc. please call us at 1-888-900-5138 or click HERE to request a free consultation and analysis of your credit file with a FICO Certified Professional.