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Saturday, March 30, 2013

FHA Credit Requirements: How Low Can You Go?

By Daniel Duffield

FHA Credit Score Requirements:

530: Minimum credit score required to qualify for an FHA loan and satisfy FHA Credit Requirements

530-579: Credit scores in this range will qualify for a minimum down payment of 10%

580: Minimum credit score required to qualify for a minimum down payment of 3.5%

620: Accepted by some mortgage lenders

640: Typical minimum credit score required by mortgage lenders.

While loans insured by the Federal Housing Administration (FHA) put much less emphasis on credit, the borrower’s credit score still matters. In addition to affecting lender’s interest rates, credit score can make the difference between qualifying for an FHA loan and not, depending on the circumstances.

How low can my credit be to secure an FHA loan?

When it comes to FHA credit requirements and FHA loans, the Federal Housing Administration does not set a universal standard for lenders as the qualifications for receiving an FHA loan. Instead, lenders who offer FHA mortgages specify their own requirements for whom to lend to, within reason. As such, although FHA loan guidelines accept low credit scores, borrowers with low credit may still have some difficulty finding a lender who is willing to give out an FHA loan.
Looking at specific credit scores, most FHA lenders will require a minimum credit score of 620, though many will require as much as 640. While scores in this range will not secure the best mortgage rates, the fact that the Federal Housing Administration insures these loans allows lenders to offer these loans to borrowers that may seem more of a risk. Many lenders will even offer loans to applicants with credit scores under 600, provided that no late payments have occurred in the past twelve months.

How will negative activity on my credit report affect my FHA Credit Requirements?

When arranging loan terms for FHA, overall credit score is usually sufficient for lenders; likewise, the specifics are often insignificant to a lender. In general, lenders are not bothered by charge-offs, collections, or late payments that appear on credit reports unless those payments occurred in connection with a previous mortgage. Nevertheless, try to ensure that your credit report lists as much positive activity as possible.

Can I get an FHA loan without having established credit?

Unfortunately for applicants who have not established credit, lenders will not typically offer a loan to borrowers without a credit score. Exceptions can be made, and in some cases, lenders will agree to work with such applicants if financial responsibility can be proved by some other means.

For most applicants without credit, presenting rent payments or utility payments, as well as phone or internet payments, can allow some applicants to establish what is known as non-traditional credit. With four non-traditional credit accounts, borrowers with no established credit can still acquire an FHA home mortgage loan, however, each lender has a distinctive policy regarding applicants with extremely low credit scores or no score at all, and this option may not always be available.

Will I benefit from having good credit when applying for an FHA loan?

While it’s true that FHA loans generally target borrowers with lower credit scores, having good or excellent credit can save you thousands of dollars over the course of your loan; since interest rates are decided at the lender’s discretion, borrowers with a decent credit standing will receive offers for much lower interest rates than borrowers with poorer credit scores.

Can I get an FHA loan with bad credit?

While having bad credit will certainly hurt your chances, qualifying for an FHA loan with poor credit is far from impossible, though it could take some time. If you have bad credit as a result of a bankruptcy, short sale, or foreclosure, you must first begin to repair your credit score before applying for an FHA loan. In order to qualify with bad credit or with a history of bad credit, a borrower must demonstrate fiscal responsibility to prove to the lender that he or she has made a financial adjustment and should no longer be considered a bad risk. Make sure to make all payments on time to show your lender that you have “learned your lesson.”

Ideally, following these two steps will help you to secure the best FHA mortgage package available:

Build your credit to at least 640.

Make all payments on time and make sure that no collections or charge-offs have been added to your report within the past twelve months.

Still worried about qualifying? Visit our FHA Requirements page for more information on how to qualify for an FHA loan.

What are the Obstacles to Getting an FHA loan?

For FHA credit requirements and FHA loans, there are less stringent requirements than most other types of loans, many borrowers still find it difficult to qualify or cannot accept the loan for various reasons. When applying for an FHA loan, always remember that you will not be able to acquire the loan without the funds necessary to pay the required 3.5% down payment. Borrowers with outstanding federal tax liens will also find that their applications will be universally denied. Furthermore, those who have made a habit of late payments may discover that lenders shy away from providing loans to less reliable borrowers.

My name is Scott Grebner and I have been helping my clients realize their own personal real estate dreams. Real estate is a relationship-based business that works best when client relationships are built on trust and confidence. My goal is having clients be completely satisfied with the professional and caring service they have received.

The role of technology is rapidly changing how the real-estate market functions in this country today. Gerharter Realtors is embracing these new mediums of communication to better serve our customers. We have created our e-family to better place important information in your hands to help you with your housing needs. As a part of Gerharter Enterprises we have access to a broader range of additional services and resources to better assist you. Visit me at my Web Site, Blog, Facebook, Twitter, You Tube or Pinterest. Please check out our helpful resources on Sellers Tips, Buyers Tips, Foreclosure Tips, and Mortgage Tips. For a personal consultation please visit our Office.

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