With huge amounts of outstanding debt following many Americans the topic of credit score has been on everyone’s mind. It doesn’t matter if you are attempting a short sale in order to save your credit or just thinking about paying off your bills. It seems like if your credit is not absolutely perfect these days it will be a bit tougher to take on a mortgage.

One mortgage specialist explained it like this, “Credit score is an important number while you apply for any kind of loan – secured or unsecured. Your creditor/lenders will decide whether or not you’re creditworthy depending upon this score. If you hurt your credit score, then it would take years to repair it. Thus, it’s a better option to protect you score rather than repairing it.

Take a look at 7 things which may affect your credit:

Defaulting mortgage payment: If your mortgage payments are past due, it’ll badly affect your credit report. The lender will start report your late payments to the credit bureau. Late payments are considered as a negative item and it will remain on your credit report for the next 7 years. Moreover, it will also lower your credit score by some points.

Charge off: If you haven’t paid your credit card dues or mortgage payments (especially second mortgage) for quite sometime, the lender may think that you would be unable to pay off the dues. Thus, your creditor/lender will charge off the account to a collection agency. This will have a huge impact on your credit score. Also, in future you won’t be able to secure a mortgage unless you pay off the charged off account.

Constant late payments: Most of us are unaware of the fact that 35% of our credit score is made up of our payment history. If a consumer is constantly late on his/her credit card bills or mortgage payments, even by few days, then it would definitely have a negative affect on your credit score.

Higher balances on credit cards: The level of debt measured by credit utilization is an important factor in building your credit score. If you have high credit card balances, your credit utilization ratio would increase and it will decreases your credit score.

Closing down old credit card accounts: Around 15% of your credit score is made up of the length of your credit history. Thus, the longer the credit history, the better for you. If you close down your old credit cards, your credit history will become shorter.

Judgment against any account: If your credit report mentions of a judgment, then it actually means that you had avoided paying your bills and the creditor had to involve the court to make you pay off the debt. However, if you’ve a judgment against you, then you should pay it off. A paid judgment is always better than an unpaid one.

Closing down credit cards which have balances: If you close down your credit card which still has a balance in it, you’ll find that your credit limit will drop to $0. However, your balance will remain the same. It will give an impression that you’ve maxed out your credit card. Thus, it will cause your score to drop.”

Even if you have bad credit there still may be ways to work around your situation so that you can buy a home.

FHA says, ‘enough is enough’ and is taking charge of policy in order to curtail another recession. The internet is buzzing with the new FHA regulations that are sure to have an impact on the Boston Real Estate Market.

“Due to the increase in mortgage defaults, the Federal Housing Administration (FHA) is changing its lending criteria. As we all know, FHA is not directly involved in lending but it insures the lenders in case the borrowers default their mortgage dues. FHA has proposed changes regarding the insurance premiums, mortgage down payments etc. Just take a look:

Rise in mortgage insurance premium: The borrowers, who take up FHA sponsored loans, have to pay an insurance premium of 1.75% of the loan amount. This has to be paid upfront but can be rolled in the loan. FHA is planning to increase this premium to 2.25%. This is the second time in the last 2 years that the insurance premiums on FHA loans will be raised.

Changes in down payment requirements: Presently, the minimum down payment requirement for a FHA backed loan is 3.5%. This limit will remain the same but the borrowers who have a credit score less than 580 will have to make a down payment of 10%. It is true that FHA loans are not solely based on credit score, however, lenders prefer borrowers who have a score of 620.

Experts are of the opinion that FHA down payment requirement should be raised further. Some of them have proposed to increase the down payment from 3.5% to 5%.

Changes in sellers’ aid to buyers closing cost: FHA is also planning to reduce the amount that sellers can offer as aid to the buyers for their closing cost. Earlier the sellers could offer 6% of the purchase price. As per the proposed changes, they would be able to contribute only 3% of the purchase price.”

“These new rules, will make it tough for borrowers to qualify for a FHA loan. However, these rules are necessary in order to avoid another real estate crisis in the near future.” (Mortgage Fit)

This is big news because the FHA just recently changed requirements on how short sales can be purchased by home buyers.