November 15, 2012
A reader asks, “I am trying to refinance my house but have had no luck. I have been employed with the same company for several years.”
“My credit score is low, During the time period from 2007-2009 I was laid off twice. The only debt we have is our mortgage and what is associated with the house. Can I qualify through FHA for a refinance?”
The reader’s question includes a mention of low credit scores. Low credit scores can definitely affect a borrower’s ability to borrow, depending on circumstances, the actual FICO score number and other factors. While some refinance loans are intended to assist a borrower and help reduce monthly payments, interest rates, or both, the credit score issue can be a factor.
But it’s not safe to assume you are NOT eligible for an FHA refinance loan because of credit scores–do you know what the FHA considers “too low” when it comes to FICO scores? For new purchase FHA loans, the minimum credit score requirement is above 500, but many lenders require higher FICO scores (within the 620 to 650 range) for a new purchase loan.
Refinance loans–depending on what you apply for–may have different standards, but the borrower should concentrate on raising credit scores and establishing a record of at least one year (preferably more) of on-time payments.
FICO scores AND repayment history are both crucial factors in any loan application, whether it’s an FHA new purchase home loan, cash-out refinancing or other loan products. Again, for some “assistance” type loans, a lender may be willing to work with you if you can demonstrate your ability to pay.
The FHA often refers borrowers to pre-purchase counselors who can help with advice on maintaining good credit, becoming a more credit-worthy loan applicant, and maintaining good credit scores. This advice can help those in search of an FHA refinancing loan, too. If you need home loan counseling, contact the FHA at 1-800 CALL FHA for a referral to an FHA approved agency in your area or nearby.
Do you have questions about the FHA loan process? 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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