FHA Loans With Low Credit Scores And Bad Credit

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This ARTICLE On FHA Loans With Low Credit Scores And Bad Credit Was PUBLISHED On July 28th, 2020

Qualifying For FHA Loans With Low Credit Scores And Bad Credit Guidelines

  • FHA mortgage loans are incredibly popular these days
  • The Federal housing administration offers highly affordable loan programs for individuals with lower credit scores
  • An FHA loan may also be a good tool if you have an average credit score
  • In this blog, we will detail the ends and outs of applying for an FHA mortgage even if your credit is not perfect
  • FHA which stands for Federal Housing Administration is overseen by the U.S. Department of Housing and Urban Development
  • Ben Carson is currently the secretary of the U.S. Department of Housing and Urban Development
  • FHA has changed their guidelines a few times since the real estate crash of 2008
  • They continue to offer mortgage financing with lower credit score requirements compared to loan programs offered by Freddie Mac and Fannie Mae
  • Freddie Mac and Fannie Mae oversee conventional mortgage guidelines the same way HUD oversees FHA and VA mortgage guidelines

In this article, we will discuss and cover FHA Loans With Low Credit Scores And Bad Credit.

Minimum Credit Score Requirements To Qualify For FHA Loans

Credit score requirements for FHA mortgage lending:

  • The majority of FHA mortgages use a 3.5% down payment. If your credit score is 580 or above, 3.5% is the minimum you must use for a down payment
  • Of course, you can always put down more
  • If your credit score is between 500 and 579, a minimum down payment of 10% is required
  • Most lenders do not offer FHA mortgages with credit scores below 620
  • However, that is a LENDER OVERLAY and not a HUD guideline
  • That is a common misconception
  • We received numerous phone calls from borrowers with credit scores below 620 who think they do not qualify for a mortgage
  • The good news is we do not have lender overlays on our FHA mortgage products
  • Even during the COVID-19 coronavirus outbreak, we are still able to fund FHA mortgage loans with credit scores as low as 500

Even if you have been turned down for a mortgage loan in the past, we encourage you to call us today.

Credit Score Versus Credit Payment History

Credit history requirements and FHA mortgage lending

  • Underwriting guidelines are more concerned with payment history than your credit score
  • You may have a qualifying credit score but still ineligible for FHA mortgage financing because of your payment history reported to the credit bureaus
  • Payment history is a major pillar for all mortgage lending, especially with FHA MANUAL UNDERWRITING
  • Mortgage guidelines want to see you responsibly pay your bills on time
  • For the majority of Americans, a mortgage is the largest liability/debt they will have in their lifetime

Proving you have paid your rent and other bills on time will increase your chances of qualifying for a mortgage.

Qualifying For FHA Loans With Late Payments In The Past 12 Months

What if you have late payments reported to the credit bureaus?

  • This is not an ideal situation but does not necessarily disqualify you from FHA mortgage financing
  • Depending on the automated underwriting system, you may still receive an automated approval
  • This holds true even with late payments reporting
  • If you do not receive an automated approval, there are very strict guidelines on how many late payments are allowed
  • For example, with installment debt, you cannot have missed payments in the past 12 months, but you are allowed two 30-day late payments between months 13 and 24
  • For revolving credit cards, you are allowed up to three 3-day late payments or two 60-day late payments in the past 12 months to get an approve/eligible per automated underwriting system

Please see our AUS BLOG for more information on the automated underwriting system.

Buying Multi-Family Homes With FHA Loans With Low Credit Scores And Bad Credit 

FHA loans for multi-family homes.

FHA mortgages are very popular for multi-family homes.

  • The FHA mortgage product has become increasingly popular to buy a multi-family home
  • This is because the down payment requirements are very lower compared to conventional lending
  • In fact, you only need 3.5% to buy up to four-unit property
  • With a conventional loan, you need at least a 15% down payment to buy a 2-unit home and 20% (or more) to buy a 3 or four-unit property
  • Buying a multi-family home in times like this can be a great idea

The rental income can create an additional source of income for you and your family.

Qualifying For An FHA Loans With Low Credit Scores And Bad Credit With A Lender With No Overlays

Applying for an FHA loan is easy. Simply call Mike Gracz on 630-659-7644 and set up a one on one mortgage consultation.

  • Mike will determine if the FHA loan product is the best loan product available for you
  • You will then be paired with a licensed loan officer in your state and sent an online application link
  • We will send in the required documentation and your loan officer will complete the preapproval process

Gustan Cho Associates have been busy during the COVID-19 coronavirus outbreak. GCA Mortgage Group is one of the very few national lenders who have not added additional overlays to their available mortgage products. The team at Gustan Cho Associates is still working seven days a week! Feel free to call or text Mike Gracz on 630-659-7644 with any mortgage-related questions. We look forward to helping you buy or refinance your next home!

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