12 Steps To Restoring Your Credit For An FHA Back To Work Home Loan
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12 Steps to Restoring Your Credit for An FHA Back to Work Home Loan

The FHA Back to Work program offers a second chance to homebuyers who have had a bankruptcy, foreclosure, deed in lieu or short sale. The program offers new opportunities for people who have suffered an economic event, but has specific guidelines that need to be followed. They include getting your credit under control.

One of the most crucial elements to qualifying for an FHA Back to Work home loan is providing evidence of restored credit. The FHA’s required 12-month waiting period between loss of a home and purchase of a new home is ample time for former home owners to rebuild credit and increase chances of qualification. First-time homebuyers who have experienced an “economic event” can also repair credit by following a few steps to better manage expenses and debt while rebuilding credit.

Establish a monthly budget based on income and expenses

• Calculate your income and identify all necessary expenses in order to build a monthly budget. This will keep you on track for the 12-month waiting period and help you rebuild credit as quickly as possible.

• Pay all of your bills on time. A 12-month record of on time payments, especially rent, with no delinquencies is required for the program.

Tip: It is better to make your minimum payment a few days late rather than doubling the amount the following month. Payments that go over thirty days late hurt your credit!

Manage your debt and credit accounts

• Reduce credit card balances and keep them low. This will save you money as you continue on your path towards home ownership by reducing the interest paid on these cards.

• Pay off the cards with the highest interest rates first. This too will end up helping you save money.

• Review all your credit reports for accuracy and report any discrepancies to the individual credit-reporting agency. You are entitled to a free copy of your credit report every 12 months from the three reporting agencies- Experian, TransUnion and Equifax.

• Communicate with creditors if appropriate. You may be able to negotiate a payment plan that will allow you to pay back your debt while still being able to afford a new mortgage.

• Avoid opening new credit accounts and acquiring new debts. Stores will offer your percentage discounts if you apply for their card but having too much credit available can hurt you. While it may be tempting, this will only set you back.

• Cancel the newest credit cards first, not the oldest. Older lines of credit carry more weight when calculating your overall credit score.

Note: Your credit score is a three-digit number calculated by the analysis of your payment history and is used by credit card companies, banks and landlords to assess your risk. It is important to protect it and keep it as high as possible!

Build credit and start saving

• Seek out a qualified credit counselor. The FHA Back to Work program requires a minimum of one hour of approved housing counseling. The counselor will address the cause of your economic event and help prevent reoccurrence.

• After receiving your housing counseling certificate, contact a qualified lender. The lender can issue a pre-qualification letter that will allow you to start shopping for a new home.

• Start a savings plan for a down payment. The program requires a down payment of at least 3.5 percent of the purchase price of a new home.

• Start shopping for your home! Once you’ve made progress towards rebuilding your credit, you’re that much closer to owning a home.

The FHA Back to Work program offers a second chance if you can properly document your financial hardship and show how circumstances beyond your control brought your income down by 20%. Whether you’re a first-time or repeat homebuyer, with the right tools and steps towards rebuilding your credit, you can be on your way towards an FHA Back to Work home loan in as little as 12 months.


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