Credit Score and Qualifying FAQs for Home Loans

Requirements vary by program: FHA reaches lower scores than conventional, VA has no published minimum though lenders set their own, and jumbo generally requires the strongest credit. Higher scores lower your rate at every tier.

There is a difference between the minimum score that gets an approval and the score that gets good pricing. Crossing from the mid-600s into the 700s can change your payment noticeably on the same loan amount.

If you are within striking distance of a tier, it is often worth 60 days of targeted work — paying down a revolving balance, correcting a reporting error — before locking. Jim will tell you when waiting is worth real money and when it is not.

DTI is your total monthly debt payments, including the new housing payment, divided by gross monthly income. Limits vary by program, and strong compensating factors can support higher ratios.

Underwriting counts the payments that appear on your credit report — car loans, student loans, credit card minimums, personal loans, child support — plus the proposed principal, interest, taxes, insurance, HOA dues and mortgage insurance.

It does not count utilities, groceries, phone bills or cooling costs. That is precisely why the maximum you qualify for and the payment you should take on are different numbers. Automated underwriting systems can approve above traditional thresholds when reserves, credit and down payment are strong.

Student loans count in your debt-to-income ratio. When a loan is deferred or on an income-driven plan, programs differ on whether they use the actual payment or a calculated percentage of the balance.

This is one of the areas where program choice changes the outcome materially. One program may use your documented income-driven payment while another imputes a payment based on the outstanding balance — and the difference can be hundreds of dollars in the DTI calculation.

For borrowers with substantial student debt, choosing the program whose student loan treatment is most favorable is often more impactful than shaving an eighth of a point off the rate.

Often yes. Guidelines vary on whether collections must be paid, depending on the amount, the type of account and the loan program. Paying one off is not always the right move.

Medical collections are treated more leniently than other types under most current guidelines. Small-balance and aged accounts are frequently allowed to remain. On the other hand, tax liens and judgments generally must be resolved or on a documented payment plan.

Counterintuitively, paying an old collection can sometimes re-age the account and lower your score temporarily. Do not pay anything off in the 90 days before applying without asking first.

Waiting periods depend on the event and the program, generally ranging from about two years to seven, with shorter periods available when documented extenuating circumstances apply.

Chapter 13 is treated differently from Chapter 7, and a foreclosure carries a longer wait than a short sale or deed in lieu under most guidelines. Government programs are generally more forgiving than conventional.

The clock usually starts at discharge or at the transfer of title, not at the filing date — which sometimes means borrowers are eligible sooner than they believe. If you have an event in your past, it is worth confirming the date rather than assuming.

Some programs allow non-traditional credit, documented through rent, utility, insurance and phone payment histories rather than credit report tradelines.

A thin file is not the same as bad credit. Buyers who have avoided debt on principle often find themselves without enough scored history for an automated approval.

Manual underwriting with alternative tradelines is a real path, particularly on government programs. It requires more documentation and a cleaner overall profile, but it exists specifically for this situation.

Do not open new credit, finance furniture or a car, change jobs, move money between accounts without documenting it, or make large cash deposits. Lenders re-verify everything before closing.

Credit is typically re-pulled shortly before closing, and employment is re-verified. A new auto loan taken out two weeks before closing has derailed more Phoenix-area transactions than almost anything else, because it changes DTI at the worst possible moment.

The safest rule: between pre-approval and keys, make no financial change without a two-minute phone call first. Nearly every problem is solvable in advance and unsolvable afterward.