FHA Loans For Bad Credit And Lower Credit Scores Mortgage Guidelines

This Article Is About FHA Loans For Bad Credit And Lower Credit Scores Mortgage Guidelines

FHA loans are government-backed mortgage loans that are originated, processed, underwritten, and funded by banks and private mortgage lenders. HUD is the parent of FHA loans. HUD-approved lenders are more than eager to offer FHA loans to qualified homebuyers with little down payment and less than perfect credit. To qualify for a 3.5% down payment home purchase FHA loan, you need a 580 credit score. HUD allows borrowers with credit scores down to a 500 FICO to qualify for an FHA loan. Borrowers with credit scores under 580 and down to a 500 credit score require a 10% down payment. Outstanding collections and charged-off accounts do not have to be paid.

There are three government loan programs. FHA loans are one of the three government loans available. Government loans are for owner-occupant home financing only. Conventional loans and FHA loans are the two most popular loan programs in the nation. Borrowers with prior bad credit, outstanding collections, and charged-off accounts, and higher debt to income ratio can benefit more from FHA versus conventional loans. The United States Housing and Urban Development (HUD) is the parent of the Federal Housing Administration (FHA). FHA has nothing to do with the origination and funding of FHA Loans.

The mission and role of FHA are to guarantee HUD-Approved Lenders in the event Borrowers default on their FHA Loans. FHA will insure the lender on the loss due to borrower default. In order for HUD to insure FHA home loans, banks and lenders need to follow HUD Guidelines.

About Qualifying For FHA Loans For Bad Credit

The best lender to go to qualify for FHA Loans For Bad Credit are lenders like Gustan Cho Associates where the lender has no lender overlays on government and conventional loans. More and more borrowers are choosing FHA loans versus any other loan program.

FHA loans are more popular now than ever. FHA Home Loans is a great home loan program of making the dream of homeownership available to first-time home buyers and those who have had prior bad credit. Qualifying For FHA Loans has much more lenient qualifying standards than conventional loans. Borrowers can qualify for an FHA loan with credit scores down to a 500 FICO. To qualify for an FHA loan with a 3.5% down payment, you need a 580 credit score. Borrowers with credit scores under 580 FICO and down to a 500 credit score, you need a 10% down payment.

Borrowers with high debt to income ratio can qualify for FHA loans where otherwise they could not have qualified for other loan programs like conventional loans.

Not All FHA Lenders Have Same Guidelines

Every mortgage lender has different mortgage lending guidelines for FHA loans. One lender might require a minimum credit score of 640 FICO for their borrowers while others might have a 620 FICO requirement. HUD minimum credit score requirement for 3.5% down payment FHA Mortgages is 580. There are lenders that will even take a borrower with FICO scores as low as 500. Borrowers who get denied by a lender for an FHA loan due to overlays can qualify for FHA Loans with a Lender with no lender overlays.

Every mortgage lender has different overlays when it comes to approving FHA loans. Gustan Cho Associates has no overlays on government and conventional loans.

FHA Loans For Bad Credit With Outstanding Collections And Judgments

There are lenders that will approve borrowers who have open and unpaid collections. Most lenders will not approve anyone who has an unsatisfied judgment due to overlays on collections. HUD Guidelines on collections and charge-off accounts do not require that borrowers need to pay outstanding collections and charge-offs. Judgments and Tax Liens need to be addressed.

Borrowers need to either have a written payment agreement with the judgment creditor and/or IRS with three months of payment history. Borrowers can pay off the outstanding judgment and/or tax liens at or prior to closing. A payment agreement will be required and copies of canceled checks for borrowers with judgments and/or payment agreements with judgment creditors and/or the Internal Revenue Service.

FHA Loans With High Debt To Income Ratio

FHA Loans With High Debt To Income Ratio

There are many folks who have great credit and have great income but a lot of debts. I have seen borrowers with credit scores of over 800 FICO and long job longevity but could not qualify for a conventional loan but qualify for FHA loans due to higher debt to income ratios. Fannie Mae caps debt to income back-end ratio at 50%. Freddie Mac caps DTI at 50%. HUD Guidelines On DTI is 46.9% front end and 56.9% back end to get an approve/eligible.

In cases like these, conventional loan borrowers need to turn to FHA loans.


Many changes have happened with FHA Loan Programs from the time this mortgage blog article was written and published. Now the FHA Loan Limit is $356,362 in most areas in the United States except for high-cost areas Many areas in California are deemed high-cost areas and the loan limits in most counties in California is $822,375 for FHA Loans In Chicago and its surrounding suburbs, FHA Loan Limits are at $379.500 for single-family units. Many homebuyers who need to purchase a higher-priced home can be priced out of the maximum FHA loan limit. If that is the case, they need to choose conventional loan financing. The loan limit on conventional loans is $548,250.

Areas of Chicago that have FHA Loan Limits of $379,500 for single-family units are Cook County, Will County, McHenry County, Lake County, and DuPage County.

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