A mortgage application, of any kind, is suppose to be a "snapshot" of the applicant's employment, income, debt, assets and credit worthiness. Don't move while the lender is trying to take this picture!
How do you "stand still" and not jeopardize your approval? Follow these rules;
1. Don't quit or changes jobs.
2. Don't buy anything on credit. This includes credit card purchases.
3. Don't apply for new credit. This could affect your credit score.
4. Don't move large sums of cash from one account to another.
5. Don't payoff, or pay down, your current debts.
6. Don't make your Good Faith Deposit in cash.
It's possible that you could make any of these moves and still be approved. Just make sure you have a discussion with your loan officer before making these moves.
If you are planning on building a new home, and have been told you don't make quite enough to qualify, you may want to consider getting a co-signer. FHA doesn't want you to spend more than 43% of your monthly income on your new home payment and all other debt service. For a young, growing, family that can be a challenge.
FHA will allow a family member to co-sign the loan with you as a non-occupying borrower. FHA will take everyone's income and everyone debt into consideration when applying the 43% debt-to-income limit.
Keep in mind that all applicants must meet FHA credit qualifications. A co-signers good credit can not overcome a borrower's poor credit. As always, call me to discuss your situation.
Is someone gifting you the land you're going to build on? Great! The FHA construction loan program allows you to use this as your down payment and even let you roll in closing costs. FHA does require that the land donor state, in writing, that this is a gift. The donor must be a family member or close friend.
If your gifted land is a freestanding piece of land, with no liens, it's own legal description and tax id number, then you are all set to build. This assumes that it meets all local and state requirements for a building permit. If, however, your gifted land is part of someone else's land, and/or has a lien on it, you have some work to do before breaking ground. Let me explain by using a common example I dealt with over the years.
Your Grandparents have a home that they bought 20 years ago. It's a large lot, several acres, and they have a small mortgage left on the home, let's say $50,000. They would like to split off a part of the land and gift it to you to build on.
Your first step is to find a survey of the lot and where the current home is placed. Have the local building department review it to see if the lot you're splitting off, and the remaining home/lot, both meet their building requirements. This will just be an informal review.
For a formal approval you will need to hire a surveyor to survey the existing lot and come up with legal descriptions for the vacant lot and the new lot. If the local government approves your split you will then have two lots, each with their own legal description and tax id number.
Now you have to get the lien removed. Keep in mind that the mortgage lien is not just on the home, it's on the land as well. All of the land, no matter if you split off a portion or not. So your new lot has your grandparent's mortgage lien on it. The FHA construction loan program will want to have the first, and only, lien on on the property. So this mortgage lien needs to be paid off or removed by your grandparent's lender.
The lender should be willing to remove the lien if they feel they have sufficient equity in the "parent" lot, the lot your grandparents still own. You would need to call the lender, explain the situation, and request an application for a "partial release of lien". This is not a common request so you will need to be persistent and ask for a supervisor.
There can be situations where you are not going to be able to pull this off. The lot may be too small, it may not have enough "frontage", the lien may be too large. My suggestion is that you call me or your builder. We can help walk you through your situation.
A wise person once told me "The most important thing in your life is your health, but your credit score isn't too far behind.". I wholeheartedly agree.
Your credit score doesn't just affect if you get a loan or not (and the rate you pay) it affects your insurance rates, and even job opportunities. Yet few people understand just what affects these scores and how to raise it. Let give you a few insights that might help you.
First, your credit scores are not just a reflection on your past payment history, although that is a big part. Your credit score is a predictor on the likelihood that you will default (go 90 days or more past due) on a credit obligation in the future.
There are many factors that go into this prediction. As stated before, you past credit history may be the most important factor but it's not the only one. When it comes to negative items (late payments, defaults, judgments, etc.) the keys are recency, frequency and severity.
One 30 day late three years ago will have almost no effect on a credit score (not recent). Where a 30 day late a month ago (recent) will have a bigger effect. One late payment (not frequent) will have less of an effect than several late payments in a row (frequent). 60 and 90 day late payment will hurt you score more than a 30 day late.
High credit card balances will bring down your score almost as quickly as a late payment. I have seen completely paid as agreed credit reports that have low credit scores due to max'd out credit cards. The credit scoring system reads this as someone that is spending more than they are taking in. While they may be paid as agreed now, the system predicts that they will have issues in the future.
The last item you want to watch is credit inquiries. For most people, 2 or 3 credit inquires a year are not going to be an issue. Beyond that you may start losing some points. If you have high credit card balances be very careful about who you allow to run your credit. The scores system reads that as a desperate borrower trying to find even more credit to keep thing going.
Go to my Important Links page to find out how to run your credit without getting hit with an inquiry. You can also find a link to the The Fair Isaac Corporation, the supplier of credit scores.