If your credit report is not ready for prime time, you're probably applying with FHA mortgage lenders to buy or refinance your house. FHA's guidelines are more flexible than those of conventional mortgage lenders.

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However, the FHA mortgage is not a bad credit or subprime home loan. Your income and assets must be thoroughly documented, your down payment must be sourced and tracked, any bad credit must be explained and the underwriter must be convinced to approve your loan. That's not a job for just any loan officer or mortgage broker, and you should not trust your mortgage application to a loan agent who's been in the business about five minutes.

If you have bad credit, it's even more important for you to have a loan officer with a lot of experience. Don't trust your mortgage refinance or new home loan to your neighbor's nephew's wife or your Realtor's best bud without making sure these folks know what they're doing.

Why a professional FHA lender matters

Good loan officers who work frequently with FHA mortgages keep up with FHA guidelines and program changes by taking continuing education classes -- and they've had their work cut out for them lately.

There have been over 500 changes to FHA mortgage programs in the last three years. These changes are often dictated by government officials, so they're not always logical or easy to understand. The highly trained FHA loan pro knows this and takes the time to learn about program adjustments and how they affect you, the borrower.

Finding and interviewing FHA lenders

To find FHA lenders, you can start by completing a form on this site to get mortgage quotes from licensed lenders that do business in your area. When you get your quotes and speak to the loan officers, ask them about FHA mortgages. Their next move should be to ask you questions, not start a hard sell. Be very careful of anyone who tries to talk you out of an FHA mortgage without understanding your situation first. They might not know how to do FHA loans or may not be licensed to do them.

Next, run through the list of questions you'll probably have about the process. For example:

  • I've been at my job for 1 1/2 years. Is that enough?
  • How much money should I have in savings to get approved for my loan?
  • Can I finance home improvements along with my purchase or refinance?
  • Is there anything I can do to get approved for a larger loan? (The answer should be yes.)
  • Is there anything I can do to improve my credit score right away? (The answer: maybe.)
A competent FHA loan officer or mortgage broker should have no problem with any of those questions.

Dealing with related issues

In addition, people who deal in FHA home loans all the time understand other issues that often also come up for borrowers -- for example, if you're a first-time home buyer, you might be eligible for down payment assistance, mortgage credit certificates or other help. The wrong loan agent, though, will never think to tell you about this.

Experienced pros also know how to flesh out a "thin file" for people who haven't used much credit, explain credit problems to underwriters and verify a down payment that came from your Dad -- in cash, from the sale of his baseball card collection. (Hey, I didn't make that up -- that's a real issue I had to deal with as a loan officer.)

There are so many good lenders and smart loan officers. Don't waste your time or money on those that are not.