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
August 28, 2024 - FHA home loan options include manufactured homes and condo units, surprising some borrowers who assume FHA mortgages are only for traditional suburban houses. You can buy a condo unit with an FHA loan, but these transactions are a bit different.
August 27, 2024 - What are a borrower's options under the low down payment FHA home loan program? There are loans for condos, manufactured homes, and traditional suburban houses. Below, we examine some of the most utilized FHA loan options.
August 26, 2024 - Your FICO scores and loan repayment history play a major role in a lender’s decisions about loan approval interest rates. New borrowers face some challenges on the road to homeownership. We examine some key issues when planning your FHA purchase or refinance loan.
August 24, 2024 - There are two primary types of mortgage insurance: private mortgage insurance, sometimes known as conventional mortgage insurance or CMI for short, and Federal Housing Administration (FHA) mortgage insurance.
August 23, 2024 - The Federal Housing Administration has residential loans for those who need to buy and remodel a home, or improve an existing one. Which is right for you? There are certain benefits for these FHA loans compared to some of their conventional equivalents.
