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
July 26, 2024 - The FHA 203(k) rehabilitation mortgage and its refinance equivalent are tools for buying and renovating a home or remodeling an existing property. This loan can be used to buy a fixer-upper and finance the repairs needed to make the home livable and meet local building codes.
July 25, 2024 - The U.S. Department of Housing and Urban Development issued a proposed new rule in July 2024 that is intended to be a permanent policy regarding the sale of delinquent FHA single-family mortgage loans.
July 23, 2024 - When shopping for a home loan, you need to gather some basic information from multiple lenders to compare the costs, fees, terms, and conditions of the home loan you seek. During this process, you can verify information with each lender you choose.
July 22, 2024 - As we age, the significance of making sound financial decisions grows. Many choose to tap into their home equity in their retirement years, and two options are important to know: FHA reverse mortgages and FHA refinancing.
July 21, 2024 - FHA refinancing is worth considering if you want a government-backed loan insured by the Federal Housing Administration (FHA) that can refinance you out of a conventional adjustable rate mortgage or get you cash back at closing.
