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.
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FHA Loan Articles and Mortgage News
September 15, 2024 - If you don’t currently own land or you want to keep the land you do own for another purpose, you’ll need to become familiar with the ins and outs of purchasing undeveloped land to build residential real estate on.
September 14, 2024 - For many older homeowners, their home represents their most valuable asset. However, tapping into this wealth without selling can be a challenge. That’s where the FHA Reverse Mortgage, officially called the Home Equity Conversion Mortgage (HECM), can help.
September 12, 2024 - Filing for bankruptcy, whether Chapter 7 or Chapter 13, has credit consequences. It may be financially necessary, but bankruptcy is a disruption to financial business as usual for those who must file. And that includes your ability to obtain a mortgage loan.
September 9, 2024 - The journey to homeownership involves many steps. Getting a home loan is just one of them, but it’s one of the most important. Some borrowers wait to find a lender, choosing to start the search while looking for a house to buy.
September 8, 2024 - The excitement of finding and making an offer on your dream home can become disappointing if the seller declines your offer. It’s a common issue regardless of how hot or cold the housing market may be at the time.
