FHA Credit Score Qualifications
Your credit history and credit score are the two most important factors that determine if your mortgage application is approved. The housing market disaster of the early 21st century forced many lenders to tighten their mortgage underwriting and credit score requirements. On Sept. 3, 2010, the Federal Housing Administration (FHA) issued new credit score requirements that borrowers must meet to qualify for FHA mortgages.
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About FHA
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The Federal Housing Administration (FHA) is an agency in the Department of Housing and Urban Development (HUD). It administers the government home loan insurance program. The most popular FHA program allows first-time home buyers to qualify for mortgages even if their credit is less than perfect. It also requires only a minimum of 3 percent down payment. The FHA permits the money needed for the closing to come from other sources, such as a gift from a relative or a nonprofit agency or government organization. The FHA's requirements are lenient about credit history and credit score in comparison to conventional mortgage requirements.
Credit Score Requirements
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According to the FHA, as of 2010 the minimum score requirement is 500. Those with credit scores of less than 500 are not eligible. Borrowers with scores between 500 and 579 are limited to 90 percent loan-to-value financing. Disaster victims are eligible for 100 percent financing if they have credit scores of 500 or higher. The FHA processes applications from borrowers with insufficient credit using special underwriting guidelines.
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Chapter 13 Bankruptcy
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The FHA will consider an application for a borrower who has filed a Chapter 13 bankruptcy, as long as he has made payments according to the court agreement for at least a year. The borrower must provide a written explanation for the bankruptcy. The credit report most demonstrate the efforts of trying to rebuild the credit. The applicant must have a stable job and qualify financially.
Chapter 7 Bankruptcy
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The FHA requires that at least two years must have passed since the discharge of the chapter 7 bankruptcy. The applicant must provide a full explanation for the bankruptcy, show re-established credit, have a stable job and qualifying income.
Foreclosure
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The FHA usually does not finance mortgages for people who had foreclosures within the previous three years, unless they were due to extenuating circumstances. If the situation was unusual, the agency may grant approval if the borrower shows re-established, good credit.
Collections, Judgments and Federal Debts
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By itself, a small collection will not interfere with the approval process. The FHA requires all judgments to be paid before the closing. Any delinquent federal obligations, such as taxes, liens and student loans disqualify the applicant.
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References
- Photo Credit large brick house image by Michael Shake from Fotolia.com
