Qualifying For FHA Loans With Bad Credit
The Federal Housing Administration, part of the United States Department Of Housing And Urban Development and known as FHA, is not a mortgage company nor does it originate, process, underwrite, fund, or service FHA Loans. Most folks have heard of FHA Loans. However, most folks do not realize that FHA is a government agency that has nothing to do with funding FHA Loans. FHA main function and role with FHA Loans is to insure FHA Loans that is originated, processed, underwritten, and funded by private banks and mortgage companies who are FHA approved mortgage lenders against default and losses of FHA mortgage loan borrowers. In order for FHA to insure FHA Loans from private FHA approved mortgage lenders, the FHA Loans needs to meet FHA mortgage lending guidelines. Qualifying for FHA Loans With Bad Credit is definitely doable because FHA has lenient mortgage lending guidelines.
Minimum Credit Score Requirements To Qualify For FHA Loans
FHA requires a minimum of a 580 FICO credit score to qualify for a 3.5% down payment home purchase mortgage loan. However, if your credit scores are below 620 FICO credit scores, FHA considers you a higher risk FHA mortgage loan borrower and this is considered having an added layered risk. With FHA mortgage loan borrowers with credit scores under 620 FICO, the mortgage rates will most likely be 0.50% higher than those with credit scores of 620 FICO or higher. Debt to income ratio requirements is capped at 43% for FHA mortgage loan borrowers with credit scores under 580 FICO where the cap on debt to income ratios is capped at 56.9% debt to income ratio for FHA mortgage loan borrowers with credit scores of 620 FICO or higher. Rental Verification may be required for FHA Loan borrowers with credit scores of 620 FICO and under.
FHA Loans With Late Payments
FHA mortgage loan borrowers can qualify for FHA Loans with prior bad credit and low credit scores. However, you cannot have late payments in the past 12 months, especially a mortgage late payment. FHA understands that people can have gone through periods of bad credit due to extenuating circumstances such as periods of unemployment, divorce, and medical issues, but FHA wants to see mortgage loan borrowers who have recovered, re-established their credit, and have been timely on their monthly minimum payments for the past 12 months. One or two late payments in the past 12 months may not be a deal killer with a good letter of explanation, however, multiple late payments will be an issue. If you had multiple recent late payments and want to qualify for a FHA Loan, the best advice I can give you is to add new credit such as secured credit cards and let the new positive credit drown the negative credit and let it season before you apply for a FHA Loan.
FHA Loans With Collection Accounts
You can qualify for FHA Loans With Collection Accounts without having to pay off the collection accounts. However, if the unpaid collection accounts are non-medical and total $2,000 or more, then 5% of the unpaid collection account balance will be used to calculate the mortgage loan borrower’s debt to income ratios unless a written payment agreement is made with the creditor. If a written payment agreement is made between the creditor and debtor, the agreed monthly payment will be used to calculate the debt to income ratios. Medical collection accounts and charge offs does not matter and is exempt from this rule.