FHA loans require borrowers to have a credit score of 580 or better. This is because lenders want to make sure that borrowers are financially stable enough to pay off a mortgage. However, there are some circumstances under which having a low credit score could actually hurt your chances of getting approved for an FHA home loan.
The Federal Housing Administration (FHA), a government agency that insures mortgages backed by the federal government, allows borrowers to use less than perfect credit scores to qualify for an FHA.
Credit History and Score Requirements
FHA loans are government-backed mortgages that allow buyers to put less than 20% down. They’re great for people who want to buy a house now but aren’t ready to make a big down payment. If you have good credit history and a low debt ratio, you might be able to take advantage of one of these loans. But there are some requirements you’ll need to meet.
First, you’ll need to check your credit report. You can do this free online once every 12 months. To find it, go to www.annualcreditreport.com. Here’s what you need to know about each type of loan:
- Conventional mortgage – This is the most common type of FHA loan. A conventional mortgage requires a 5/1 LTV (loan-to-value), meaning you have to put down just over half the value of the property ($20,400 for single-family homes). And because you’re putting less than 20%, you won’t count toward your total debt ratio.
- VA Mortgage – These come with lower down payments. You can put up to 3/1 LTV, or 10% of the property’s value. However, your monthly payments will be higher.
- USDA Loan – This is another option for borrowers with poor credit. You can put down as little as 3% of the property’s price. Monthly payments will be slightly higher than for a conventional loan.
The second requirement is having a 620+ credit score. Most lenders require a 680+ score to qualify for the best deals. But even if your score isn’t high enough, you may still be able to get approved for a loan. Some lenders will accept scores as low as 580.
Once you’ve got the financing lined up, here are some things to keep in mind:
FHA Loans And Credit Score
The Federal Housing Administration (FHA) offers loans to people who do not have enough cash to buy a house. These are called “government backed” loans because the government guarantees lenders against loss. You can use an FHA loan to purchase a single family residence, townhouse, condo or manufactured home.
In addition to providing financing, the FHA insures the lender against losses caused by borrowers defaulting on their payments. This program helps keep down costs for both buyers and sellers.
FHA Interest Rates
The Federal Housing Administration (FHA) insures mortgages for borrowers with lower credit scores. These borrowers often don’t qualify for traditional mortgages because of their low credit ratings. However, they still want to purchase homes. In fact, according to the National Association of Realtors, about one out of every four buyers uses an FHA loan.
If you’re looking to purchase a house, consider applying for an FHA loan. You’ll pay less than most conventional lenders and you won’t have to worry about qualifying for a mortgage.
Here are some things to know about FHA loans:
- Qualifying for an FHA loan requires a down payment of 3.5% or 20% of the property value.
- If you make less than $80,000 annually, you must earn a credit score of 580 or higher to qualify for an FHA loan; otherwise, you’ll have to meet the requirements of a conventional lender.
- An FHA loan typically carries a fixed interest rate.
- Most FHA loans require no proof of income.
- You can apply online or over the phone.
FHA Minimum Credit Score: 500
The Federal Housing Administration (FHA) requires borrowers to meet certain criteria in order to receive financing. One of those requirements is having a good credit rating. If you don’t have a high enough credit score, you might want to consider applying for an FHA mortgage.
Credit scores range from 300 to 850. A lower number indicates a riskier borrower. Your lender will review your credit report and determine whether you are eligible for an FHA loan based on your credit score.
A low credit score could prevent lenders from approving you for a home loan. You’ll pay a higher interest rate and fees for borrowing money.
Lenders typically require a minimum credit score of 620 to approve an FHA loan. However, some lenders have stricter standards. For example, Wells Fargo requires a minimum credit score of 575.
If you’re looking for a home loan, it’s important to understand what your credit score needs to be in order to qualify. Contact your local bank or credit union to find out how much you’ll need to earn to qualify for an FHA loan and what type of interest rate you’ll pay.