Credit Requirements for FHA Loans
Good Credit History Makes it Easier to Qualify
FHA loans provide great assistance to many first-time homebuyers by offering mortgage loans with lower down payments. While this is a benefit for many people, recent changes in policy may have put the loans just out of reach for some would-be homeowners with questionable credit history.
Credit History and Score Requirements
For those interested in applying for an FHA loan, applicants are now required to have a minimum FICO score of 580 to qualify for the low down payment advantage, which is currently at around 3.5 percent.
If your credit score is below 580, however, you aren't necessarily excluded from FHA loan eligibility. Applicants with lower credit scores will have to put down a 10 percent down payment if they want to qualify for a loan.
So if you're planning to buy a house, and your credit score doesn't meet the minimum, you should weigh the advantages and disadvantages of putting down a larger down payment or using those funds to try and improve your credit score first.
Benefits of an FHA Loan
The reason why FHA loans are so popular is because borrowers that use them are able to take advantage of benefits and protections unavailable with most traditional mortgage loans. Loans through the FHA are insured by the agency, so lenders are more lenient. Here are a few benefits you can enjoy with an FHA loan:
- Easier to Qualify
While most loans exclude applicants with questionable credit history and low credit scores, the FHA makes loans available with lower requirements so its easier for you to qualify. - Competitive Interest Rates
You've heard the horror stories of subprime borrowers who couldn't keep up with their mortgage interest rates. Well, FHA loans usually offer lower interest rates to help homeowners afford housing payments. - Lower Fees
In addition to lower interest rates, you can also enjoy lower costs on other fees like closing costs, mortgage insurance and others. - Bankruptcy / Foreclosure
Just because you've filed for bankruptcy or suffered a foreclosure in the past few years doesn't mean you're excluded from qualifying for an FHA loan. As long as you meet other requirements that satisfy the FHA, such as re-establishment of good credit, solid payment history, etc., you can still qualify. - No Credit
The FHA usually requires two lines of credit for qualifying applicants. If you don't have a sufficient credit history, you can try to qualify through a substitute form.
For many homebuyers, using an FHA loan can really make the difference between owning your dream house comfortably or turning it into a financial nightmare. The FHA provides a wealth of benefits for applicants that qualify, so make sure you're making full use of them.
Credit Scores for FHA Loans
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FHA Loan Articles and Mortgage News
November 27, 2023 - Major career changes may make your lender reconsider your loan application until you have had enough time in the new job to prove your new income is likely to continue. Your lender typically needs at least 24 months as a self-employed person, freelancer, or new contact employee.
November 21, 2023 - The lowest down payment possible for an FHA mortgage is 3.5% of the price of the home. But how much should you aim for when setting your budget to save up for that down payment?
The short answer is no. But why?
November 15, 2023 - What credit score do you need to buy a home? The answer might seem simple enough, but it can change depending on the type of home loan you seek and the options you want. You may have difficulty getting lender approval for a purchase loan with a FICO score below 580.
November 13, 2023 - The FHA and HUD feel these alterations will improve the valuation of these homes for borrowers seeking FHA-insured mortgages. These changes also contribute to FHA’s efforts to increase the availability and affordability of manufactured housing.
November 7, 2023 - What can borrowers do to fight the cost of higher mortgage loan interest rates on the way to buying a home? In addition to down payment assistance, an adjustable rate mortgage, or lender help with closing costs, there’s another option.
