July 29, 2015
A reader got in touch with us this week to ask if it is possible to get an FHA mortgage loan even if the borrower doesn’t have “perfect credit”. While it’s not clear what the reader means by that phrase, we can answer the question in a general way.
The simple answer is yes, borrowers can apply for and get approved for FHA home loans with less than perfect credit, but much depends on the nature of the credit issues on your report and whether there’s an overall pattern of responsible credit use the lender can use to justify approving your home loan.
FHA loan rules are clear that individual mistakes in a borrower’s past should not be the sole determining factor when it comes to approving or denying an FHA loan application. FHA loan requirements have the lender looking for a larger pattern of credit use that indicates whether the borrower is a good risk or not. Your one or two mistakes in the past won’t kill your loan application in ideal circumstances, but the lender can’t justify giving you credit if there is a sustained pattern of credit problems.
Your credit activity in the 12 months leading up to your loan application are extremely important. Borrowers should always come to the home loan process with 12 months of on time payments for all financial obligations. Anything less than this jeopardizes your ability for loan approval.
FICO scores are also important. The FHA has its minimum FICO score requirements, but many lenders require higher FICO scores (620-640 and higher depending on the lender). If your FICO scores are marginal, a larger down payment may be required depending on circumstances, but some lenders may not accept your FICO scores at all if they are below 600.
The best thing to do in cases where the borrower is uncertain is the same course of action a borrower who is positive his or her FICO scores are good enough: pull your credit reports from the three major reporting agencies and see what the lender will see when you apply for the loan.
Borrowers do not need perfect credit to apply for an FHA mortgage, but knowing your credit scores and what’s on your credit reports will go a long way toward helping you know whether or not you’re ready for an FHA loan at the time you pull those reports.
Do you have questions about FHA loans? Ask us in the comments section.
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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