FHA Credit Requirements and Guidelines

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FHA home loans are managed by the Department of Housing and Urban Development (HUD) and HUD is responsible for establishing all the guidelines for borrowers as well as lenders who participate in the programs. According to HUD’s guidelines, the FHA approved lenders are required to receive a credit report from the borrower to determine their integrity.  Borrowers who have a good credit record are more likely to get their loans approved compared to those who have maligned credit histories.

First time home buyers might not be aware of credit histories, so for them, credit report is summarized history of how you borrowed and repaid money in the past. There are mainly three credit companies from whom you can acquire your credit reports – Experian, Equifax, and TransUnion. So if you are willing to buy a home, make sure you receive a credit report and check whether your credit history is satisfactory enough to apply for FHA loans or not. To know about the credit requirement for FHA home loans, read on.

FHA Mortgage Credit Requirements and Guidelines

FHA Credit Requirements and GuidelinesHome buying is becoming easier with FHA insured mortgages, since FHA approved lenders stick to flexible credit guidelines when approving borrowers for FHA home loans.Now the lenders are offering financing for borrowers having credit scores 580 or better. Borrowers with credit scores 580 or more will get the advantage of paying 3.5% down payments, while those with scores lower than 580 will have to pay 10% down payments.

According to HUD, if your credit score is 580 or higher you are eligible to get maximum financing that is, 96.5% LTV (loan to value ratio); if your credit score is between 500 and 579, the maximum LTV will be restricted to 90% and those with scores less than 499 will not be approved for FHA mortgages.

FHA Loans for Borrowers with Bad Credit

No Credit History

In order to apply for FHA loans, borrowers need to have two lines of credit. In case, a borrower does not have enough credit on the credit report, they will have to obtain the substitute forms from FHA for loan application.

Chapter 13 and Chapter 7 Bankruptcy

Borrowers with Chapter 13 bankruptcy will be eligible for FHA home loans, if all the payments are made on time and they are verified over a period of 1 year. The borrowers need to get a written approval from the court trustees and also provide a detailed explanation of the bankruptcy along with the loan application. Financial stability and re-established good credit history are also required.

If you want to apply for FHA loans after Chapter 7 bankruptcy, you will have to wait for a period of 2 years, minimum, from the discharged date. Other requirements for loan application are same as that of Chapter 13 bankruptcy.

FHA Credit Requirements and Guidelines

Foreclosure

FHA loans are not available to borrowers with a foreclosure within 3 years of the loan application. The borrower will only be able to apply for FHA home loans, after 3 years waiting period. In case the borrower’s primary residence was foreclosed under extenuating factors, some exceptions may be granted, if they have good credit report since then.

FHA home loans are the most lenient and flexible home loan program available for the home buyers in U.S. It also requires a minimum down payment of 3.5%, which is lower than any other comparable fixed rate home loan. there are many benefits of FHA home loans.

Remember, FHA does not lend money itself. The financing is provided through FHA approved lenders, so they credit requirements may vary with each lender. Shop around to find a lender that offers the best rates. Also, if you have bad credit, talk with your lender about the consequences of borrowing money with low scores. In case you find the consequences to be too harsh, it is good to wait for some time and improve your scores before applying for FHA mortgages.

If you have further questions, you can contact FHA Home Loan Group via email or phone call. You can also fill out our contact form and we’ll get in touch with you.

FHA Credit Requirements and Guidelines

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