February 28, 2014
Are FHA home loans getting easier to come by? According to one report in the L.A. Times, the answer is yes. Several sources are reporting that average credit scores on FHA mortgages has “declined steadily”. Combine that with a trend towards higher debt-to-income ratios among borrowers and you have indications that lenders in general may be easing their standards.
For many years, the minimum credit score many lenders would need to approve an FHA loan was between 620 and 640. But with reports of some financial institutions approving FHA mortgages with scores at 600–still well within the FHA guidelines for loan approval–it seems the lending environment has gotten friendlier to borrowers with credit scores in this range.
According to the L.A. Times report, “The FHA theoretically allows credit scores as low as 580. But lenders, buffeted by defaulted loans and demands that they buy back troubled mortgages that they sold, generally have set standards higher since the mortgage meltdown.”
FHA borrowers with lower credit scores may not have access to the most ideal interest rates, but for those looking to get into a home, the low down payment requirements can make up for some of that compared to the down payments needed on many conventional mortgages. FHA loans feature a minimum 3.5% down, as opposed to as much as 20% on conventional loans.
FHA home loans may be easier to come by these days if the reports are any indication, but FHA loan applicants should always compare rates and terms with competing lenders to try to get the most favorable deal. For those looking for an FHA cash-out refinance loan, remember that you aren’t tied to your current lender when looking to refinance. Any participating FHA lender can help you refinance your conventional, VA or FHA mortgage loan.
Do you have questions about FHA home loans? Ask us in the comments section. You can apply or get pre-approved for an FHA loan at FHA.com, a private company and not a government website.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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