Credit Scores and FHA Loans
The minimum FHA home loan credit score for a regular mortgage loan is 500. At the same, there are multiple factors that can impact one’s ability to obtain an FHA loan with low credit scores.
Technically speaking, there are two minimum score grades for an FHA down payment. With a FICO rating of 500, one will need a 10% down. With a score of 580, one will need only a 3.5% deposit. While it’s true that the FHA loan program permits for low credit scores, they do not allow approval to loanees who have low credit scores simply because their FICO records and credit history is just plain terrible.
That said, FHA loans are extendable to loanees in other unique situations, including loanees who are unable to present credit scores and even loanees who have experienced a bankruptcy or foreclosure.
FHA Loan vs. VA and USDA Loan Credit Score
Compared to other loan programs, here’s how the FHA minimum FICO score fairs: VA home loans do not require a minimum credit score. In that regard, VA can be considered better. USDA loans, on the other hand, have a credit floor of 620 to 640. Having established that, conforming loans demand a credit score of at least 620. Still, a few programs allow exceptions when there are mitigating situations, like identity theft. As established, an FHA can prove to be very useful to a sea of people who struggle to build or maintain their credit scores. It’s also the only loan in the market now that allows a debtor to choose where to reside freely. A VA can grant that but is exclusive only to veterans, meanwhile, under USDA loans, only certain places are eligible for financing.
Furthermore, obtaining FHA home loans have become so much easier for many potential borrowers, as many lending firms now approve 96.5% of FHA loan applications for debtors with FICO ratings of 580. The loan program’s 3.5% deposit minimum is truly among the most compliant for today’s home purchasers. To add, underwriting standards under the FHA are considered to be just as lenient.
With all the mentioned, it’s wise to note that FHA is not a bank or a financial center. They are not in charge of disbursing cash or issuing checks. They merely portray the role of guarantors to help reduce the risk these private lending firms are exposed to. In that case, should a loanee flake for whatever condition, these lenders aren’t left at a tragic loss.
It’s also possible for a borrower to get an FHA 203K loan should there be a need to. What this loan does is that it combines home rehabilitation and a home purchase mortgage into one, making a loanee focus on and apply for one loan only. Interestingly, this loan type under the FHA is known to be infamous with paperwork and often involve having to get the approval of so many parties.
All in all, the FHA is a good loan program for those looking at buying a home for the first time. Those considering buying homes for the second time can still qualify, too. Don’t be deceived, though. Like many loans, FHA does also have features that many people don’t find specifically favorable; so learn to weigh options.
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