1. FHA Credit
FHA announced a set of policy changes to strengthen the FHA. The changes announced are the latest in a series of changes enacted in order to better position the FHA to manage its risk while continuing to support the nation’s housing market recovery.
The FHA has taken the following step:
Update the combination of FICO scores and down payments for new borrowers. New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA's 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%.
Minimum credit score for FHA loans is 500.
2. FHA Credit Requirements
FHA credit requirements have changed. For purchase and refinance you will need a minimum of 580 credit score for 3.50% down payment or 97.5% rate and term refinance or 85.0% cash-out refinance. If your credit score is below 580 then a 10.0% down payment is required for a purchase and a maximum of 90% LTV for a rate and term refinance.
Most lenders require a 640 credit score. There are fewer lenders that will allow 620 credit score and fewer that allow credit score down to 500.
3. Credit Score
The Federal Housing Administration insures FHA loans and did not used to require a minimum FICO score. The new FHA Policy changes requires a minimum FICO score of 580 for 3.5% down payment and anyone purchasing with a score lower than 580 will require 10% down payment. These changes went into effect in the summer of 2010.
4. No Credit History
Two lines of credit are necessary to apply for an FHA loan. However, in the event a borrower does not have sufficient credit on their credit report the FHA will allow substitute forms. Rental history of 12-24 months will be required.
5. Late Payments
During an underwriter analysis of borrower credit, the overall pattern of credit behavior is being reviewed rather than isolated cases of slow payments. If a good payment pattern has been maintained, regardless of a specific period of financial difficulty preceded it, the borrower may escape disqualification.
6. Collection, Judgments, Federal Debts
A collection is minor in nature usually does not need to be paid off as a condition for loan approval. It is stated as such in FHA guidelines. Any judgments will have to be paid in full prior to closing. Borrowers who are delinquent on any federal debt, such as tax liens, student loans, etc., are not eligible.
7. Chapter 7 Bankruptcy
At least two years must have elapsed since the discharge date of the borrower and / or spouse's Chapter 7 Bankruptcy according to FHA guidelines. This is not to be confused with the bankruptcy filing date. A full explanation will be required with the loan application. In order to qualify for an FHA loan, the borrower must qualify financially, have re-established good credit and have a stable job.
7. Chapter 13 Bankruptcy
FHA will consider approving a borrower who is still paying on a Chapter 13 Bankruptcy if those payments have been satisfactorily made and verified for a period of one year. The court trustee's written approval will also be needed in order to proceed with the loan. The borrower will have to give a full explanation of the bankruptcy with the loan application and must also have re-established good credit, qualify financially and have good job stability.
FHA insured mortgages are generally not available to borrowers whose property was foreclosed on or given a deed-in-lieu of foreclosure within the previous three years. However, if the foreclosure of the borrower's main residence was the result of extenuating circumstances, an exception may be granted if they have since established good credit. This does not include the inability to sell a home when transferring from one area to another.
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FHA loan requirements new borrowers with less than a 580 credit score will be required to put down at least 10%
FHA requires a minimum credit score of 500 to buy a home or refinance
Chapter 7 Bankruptcy at least two years must have elapsed since the discharge date
Foreclosure must have been resolved for at least 3 years
Government loan: Seasoning is determined by the date the claim was paid
Loans other than Government: Seasoning is determined by the date of sale the lender sold the property
FHA guidelines requires three year past from the date of sale of the property
What documentation will I need?