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 22, 2024 - Purchasing a home that needs some improvements or renovations can be a smart financial move, and FHA Rehab loans can help whether you’re buying a fixer-upper home or renovating the property you currently live in.
August 20, 2024 - One key difference is that FHA loans are insured by the Federal Housing Administration, which allows for more lenient credit score requirements. The government’s guarantee makes these loans less risky for the bank than a conventional mortgage without such a guarantee.
August 18, 2024 - The best credit advice for house hunters involves giving yourself plenty of prep time to improve your FICO scores and history of on-time payments. But what else do you need to know about fixing your credit before you apply for a mortgage?
August 17, 2024 - FHA cash-out refinance loans require a new credit check and appraisal, similar to the rules for an FHA new purchase loan. An appraisal is mandatory, and contesting the appraisal is not allowed unless there are deficiencies in the report or the work itself.
August 16, 2024 - There are cash-out FHA refinance loans and no-cash-out options. FHA refinance options without a cash-out feature can be valuable for homeowners seeking to lower their interest rates, shorten their loan terms, or switch from an adjustable to a fixed-rate mortgage.
