FHA Loan Requirements 2021
FHA loan requirements 2021 - minimum credit score is 500 to buy a house or refinance.
New FHA policy requires a minimum credit score of 500 to buy a house or refinance. Borrowers with a credit score above 500 are eligible for an FHA loan.
New borrowers will now be required to have a minimum credit score of 580 to qualify for FHA 3.5% down payment. New borrowers with less than a 580 credit score will be required to put at least 10% down payment.
The FHA has updated the combination of credit score and down payments for new borrowers:
Borrowers with a score above 500 can refinance up to a 97.5% loan-to-value on a rate and term refinance. And up to 80% cash out refinance with a credit score above 500.
No credit history
Three 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. FHA allows minimum alternative trade lines if you have no credit scores.
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.
FHA does not require collection accounts to be paid off as a condition of mortgage approval. However, FHA does recognize that collection efforts by the creditor for unpaid collections could affect the borrower’s ability to repay the mortgage.
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.
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.
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