Your credit score is one of the biggest decisions about whether you qualify for a mortgage and your mortgage rate. If your credit needs work, Credit Counseling It may help. Here are some ways mortgage credit counseling works and why it affects your chances of getting loan approval.
Mortgage credit counseling and debt management
Credit counseling is not the same. Debt management or debt relief or settlement. Counseling is just advice. Think of it like consulting with a therapist. You don’t need to adhere to the counselor’s guidance, but it will help you understand financial pitfalls and suggest steps to fix them.
Some counselling providers may be able to turn that initial session into a debt management or relief plan. Alternatively, you can contact another debt management company for help. If you choose this route, your organization will usually help you resolve your debt with a fee. Generally, these plans last up to five years.
“Usually, fewer than half of those seeking credit counseling actually register in their debt management plans,” said Michael Sullivan, director of education at Take Charge America, a non-profit financial counseling agency. “Many people either have control over their debts or because their debts benefit from debt management plans.”
Credit counseling does not prevent you from getting an automatic mortgage. It’s also completely optional. There are many ways to do it Improve your mortgage credit Pay your bills on time and Credit use.
But debt management or relief plans can discredit you, says Jeremy Davis, president of Southern Bancorp’s mortgages.
“Beware of businesses that promise quick corrections and full forgiveness of debt,” Davis says. “If your debt is allowed, your credit is likely to be hit negatively and you can borrow taxes from the IRS for the debt that is allowed.”
If you are interested in credit counseling, please visit the National Credit Counseling Foundation, the American Financial Counseling Association, or U.S. Department of Housing and Urban Development.
Can I buy a house during credit counseling?
Moshi Gatling, Senior Vice President of New American’s Strategic Growth and Expansion in Financing, says that while it’s possible to get a mortgage and buy a home, he expects more scrutiny.
“Some lenders may need to make a certain number of on-time payments, typically for 12 months, before considering applying for a mortgage,” Gatling says. “It’s all about showing a clear path to consistency, stability and progress.”
Also consider the type of mortgage you have. For example, if you are looking at an FHA loan, the counselor will need to provide written permission for you to apply.
“Traditional loans tend to be tougher,” Gatling says. “Especially if you’re in a formal debt management plan.”
Ultimately, Davis tells credit counseling borrowers that “there is no cookie cutter solution.”
“Make sure to seek advice from an experienced mortgage lender who understands the challenges of credit,” says Davis.
Does a mortgage lender offer credit counseling?
Most mortgage lenders are not in the credit counseling business, with exceptions. Veterans United mortgages, for example, offer credit “consulting” services that help borrowers establish credit profiles to place them in the mortgage position. Some credit unions also link borrowers to counselors, but the services may not be directly affiliated with the institution.
Mortgage credit and debt requirements
Whether you have credit counseling or not, you need to meet Minimum credit score and Debt Income (DTI) Ratio Mortgage requirements. The overview is as follows:
| Loan type | Lowest credit score | Maximum DTI ratio |
|---|---|---|
| Traditional loans | 620 | 36%-50%, depending on automatic or manual underwriting and compensation factors |
| I had a loan | 580 or 500 down 10% with a 3.5% down payment | 43% (in some cases high) |
| appear | None, but generally 620 | 41% (in some cases high) |
| USDA loan | None, but generally 640 | 41% (in some cases high) |
