Credit Guidelines That FHA Lenders Follow
Before approving a loan, the lender analyzes the integrity of the borrower's past credit performance. Based on FHA requirements, those who have a good credit history demonstrated by a solid track record of timely payments will likely be eligible for a loan. Potential borrowers whose credit history is marred by slow payments, poor financial judgment and delinquent accounts is not a good candidate for loan approval.
The following is a list of items concerning the borrower's credit:
No Credit History
Two lines of credit are necessary to apply for an FHA loan. However, in the event a borrower does not have sufficient credit on their credit report the FHA will allow substitute forms.
Chapter 13 Bankruptcy
FHA will consider approving a borrower who is still paying on a Chapter 13 Bankruptcy if those payments have been satisfactorily made and verified for a period of one year. The court trustee's written approval will also be needed in order to proceed with the loan. The borrower will have to give a full explanation of the bankruptcy with the loan application and must also have re-established good credit, qualify financially and have good job stability.
Chapter 7 Bankruptcy
At least two years must have elapsed since the discharge date of the borrower and / or spouse's Chapter 7 Bankruptcy, according to FHA guidelines. This is not to be confused with the bankruptcy filing date. A full explanation will be required with the loan application. In order to qualify for an FHA loan, the borrower must qualify financially, have re-established good credit, and have a stable job.
Late Payments
During an underwriter analysis of borrower credit, the overall pattern of credit behavior is being reviewed rather than isolated cases of slow payments. If a good payment pattern has been maintained, regardless of a specific period of financial difficulty preceded it, the borrower may escape disqualification.
Foreclosure
FHA insured mortgages are generally not available to borrowers whose property was foreclosed on or given a deed-in-lieu of foreclosure within the previous three years. However, if the foreclosure of the borrower's main residence was the result of extenuating circ*mstances, an exception may be granted if they have since established good credit. This does not include the inability to sell a home when transferring from one area to another.
Collections, Judgments, and Federal Debts
A collection is minor in nature usually does not need to be paid off as a condition for loan approval. It is stated as such in FHA guidelines. Any judgments will have to be paid in full prior to closing. Borrowers who are delinquent on any federal debt, such as tax liens, student loans, etc., are not eligible.
FHA Loan Requirements
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FAQs
The three primary factors that can disqualify you from getting an FHA loan are a high debt-to-income ratio, poor credit, or lack of funds to cover the required down payment, monthly mortgage payments or closing costs.
What will disqualify you from an FHA loan? ›
The three primary factors that can disqualify you from getting an FHA loan are a high debt-to-income ratio, poor credit, or lack of funds to cover the required down payment, monthly mortgage payments or closing costs.
What are the requirements for the FHA loan in 2024? ›
FHA Credit Requirements for 2024
FHA Loan applicants must have a minimum FICO® score of 580 to qualify for the low down payment advantage which is currently at 3.5%. If your credit score is below 580, the down payment requirement is 10%. You can see why it's important that your credit history is in good standing.
Does FHA require 3 credit scores? ›
Two lines of credit are necessary to apply for an FHA loan. However, in the event a borrower does not have sufficient credit on their credit report the FHA will allow substitute forms.
What is the credit limit for FHA loan? ›
For many single-family homebuyers in California, the FHA loan limit is $498,257, but in more expensive areas like Los Angeles, Orange, Santa Cruz and San Francisco counties, you could borrow as much as $1,149,825.
Why would a house not be FHA approved? ›
The FHA's three requirements are that a property must be safe, secure, and structurally sound to qualify for one of their loans. Properties cannot have adverse conditions that might imperil the homeowner, and must meet proper building codes. As a buyer, these standards protect you from buying an unsafe property.
Why would I not qualify for an FHA loan? ›
There are three popular reasons – bad credit, high debt-to-income ratio, and overall insufficient money to cover the down payment and closing costs of a home.
What credit score is needed to buy a $300K house? ›
What credit score is needed to buy a $300K house? The required credit score to buy a $300K house typically ranges from 580 to 720 or higher, depending on the type of loan. For an FHA loan, the minimum credit score is usually around 580.
What is the minimum FICO score for a FHA loan? ›
Requirements for an FHA Loan
The requirements that borrowers need to have (and understand) include: 580+ credit score with a minimum down payment of 3.5%
How hard is it to get an FHA loan? ›
While conventional mortgages usually require a credit score of 620 or more, FHA loans are open to borrowers with credit scores as low as 500. You don't need a big down payment. If your credit score is 580 or more, you could qualify to put down just 3.5%. Interest rates are competitive.
The FHA approves loan amounts based on several factors, such as your monthly income and expenses, credit score, interest rate, the loan term and the value of the property. The maximum FHA loan in most areas of the country for a single-family home is currently $420,680 for 2022.
Do I make too much for an FHA loan? ›
Are there income limits for an FHA mortgage? There's also no maximum income requirement for an FHA loan, so you don't have to worry about earning too much to qualify. These loans are ideal for those who want a lower down payment, and for those with lower credit scores.
What is an FHA loan and who qualifies? ›
An FHA loan is a type of mortgage geared toward borrowers with lower credit scores or who otherwise don't qualify for a conventional loan. You can use an FHA loan to buy, build or renovate a home, or to refinance an existing mortgage.
What will cause an FHA loan to fail? ›
The overall structure of the property must be in good enough condition to keep its occupants safe. This means severe structural damage, leakage, dampness, decay or termite damage can cause the property to fail inspection. In such a case, repairs must be made in order for the FHA loan to move forward.
Why would someone not accept an FHA loan? ›
While some sellers may be hesitant to accept an FHA offer, it's important to understand the facts before making a decision. Some reasons a seller might refuse an FHA loan include misconceptions about longer closing times, stricter property requirements, or the belief that FHA borrowers are riskier.
What would cause an underwriter to deny FHA mortgage? ›
There are many reasons why an underwriter may deny your mortgage loan, such as a low income, an unsatisfactory credit history or a recent change in employment. If an underwriter denies your mortgage loan, try going to a smaller lender or addressing the issues that caused the denial in the first place.
Is it hard to pass an FHA inspection? ›
Is It Hard to Pass a FHA Inspection? As long as the property meets the 3 minimum standards set by the HUD, it shouldn't be hard to pass a FHA inspection. To increase the property's chances of passing, prepare for the FHA inspection in advance. Check the property for hazards, broken systems or parts, and quality issues.
