May 7, 2024
One of the most commonly asked questions about any home loan program including FHA mortgages? “Is my credit good enough?”
It’s a great question, but for some applicants, it’s not asked soon enough in the process to make much of a difference.
The truth is if you start working on your credit the moment you decide to commit to purchasing a home in the future, the better.
And that’s because there isn’t just a single FICO score to aspire to or a single set of tasks to perform so you can be “ready”.
What does it take to qualify for any home loan? A combination of factors including your FICO scores, loan repayment history, credit utilization, and employment stability. That’s what it takes to qualify for ANY mortgage. What does it take to qualify for an FHA home loan?
FHA home loan qualifications include FICO scores of 500 or above (that’s the FHA minimum standard, not your lender’s credit score requirements. Those may be higher than 500.) and 580 or higher for the lowest down payment of 3.5%.
Additional lender standards, as mentioned above, will apply.
But that’s not all. Your lender must typically verify two years of employment history (not necessarily with the same company) and must verify that your income is reliable and from approved sources.
That typically means that your income is predictable somehow for purposes of showing that your income is likely to continue.
Make your living as a seasonable worker, a contractor, a self-employed small business owner, etc. You’ll likely have some additional paperwork to submit, but you should not count yourself out of the running just because your employment is not a typical 9-5 job.
There are some other factors.
If you have had a bankruptcy or foreclosure, you aren’t locked out of the FHA home loan program, but you may have to sit out a minimum amount of time, known in the industry as a “seasoning period,” before applying for a new mortgage.
Some who have filed for bankruptcy may need the court’s permission to proceed–this must be provided as a written statement or in some other form the lender can document.
Those with credit issues that include unpaid or delinquent federal debts must be able to show the lender that the debt has been managed to the satisfaction of the government.
This may require you to show proof of payment plans, such as how many on-time payments have been made under each plan.
When it comes to required seasoning periods, you should remember that the clock begins on those periods when the bankruptcy or foreclosure has been discharged or otherwise completed. The seasoning period DOES NOT start when it has been filed.
That’s a common mistake some house hunters make when considering when to begin looking for a home after a “negative credit event” such as bankruptcy.
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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