Credit Requirements for FHA Loans
FHA loans provide help to first-time homebuyers by offering mortgage loans with less money down than other programs. Recent policy changes have shifted the focus to having a good credit history when applying for a FHA loan. Below are some of the key points to be aware of when applying for a FHA loan:
Credit History and Score Requirements
Applicants are now required to have a minimum credit (FICO) score of 620 in order to qualify for the low down payment benefit, which is 3.5%. If your credit score is lower, you aren't necessarily excluded. This just means that you will have to put down a 10% down payment if you want to qualify. If you're planning on purchasing a property and your credit score doesn't meet the minimum of 580, you should weigh the pros and cons of putting down a bigger down payment, as opposed to trying to improve your credit rating first.
Benefits of an FHA Loan
The benefits of a FHA loan are greater than most traditional home loans. For this reason, they are very popular. These loans are also insured by the government, so lenders are a bit more lenient. Here are a few key benefits of a FHA loan:
- Easier Qualification - FHA loans are easier to qualify for applicants that have a questionable credit history or lower credit scores.
- Competitive Interest Rates - This helps would-be home owners keep their monthly mortgage payment lower so they are able to make their payments with greater ease and have a higher probability of keeping up on their payments.
- Fewer Fees - Closing costs, mortgage fees, and interest rates are lower.
- Bankruptcy & Foreclosure Forgiveness - As long as you meet certain requirements, such as re-establishing your credit, maintain a solid payment history, etc., you can still qualify. A bankruptcy or foreclosure doesn’t necessarily prevent you from qualifying.
- Lack of Credit - There are substitute forms available to assist applicants that don't meet the minimum of "two lines of credit" rule, which is typical for FHA loans.
To sum it up, making sure that you are aware of the many benefits of an FHA loan can increase the chances that you are able to purchase the home of your dreams, and comfortably maintain your payments.