June 22, 2017
Who qualifies for an FHA home loan? Many borrowers want to know if they can get approved for an FHA mortgage even with low FICO scores, past mistakes on their credit history, or other issues. What does your lender have to see in your financial details in order to approve your home loan?
FHA Borrower Credit Scores
The main confusion over FHA home loan FICO score requirements comes when a potential borrower reads FHA loan program standards but doesn’t understand that lender standards may also apply. FHA home loan rules state that a borrower with a FICO score between 500 and 579 is technically eligible for an FHA home loan provided a larger down payment of 10% is made.
But a borrower with a 500 FICO score may discover that many lenders need FICO scores in the mid-600s to start. This is because lender standards are higher than the FHA single family home loan program’s minimum requirements. Lenders are free to require these higher FICO scores as long as it is done in accordance with federal laws and Fair Housing laws.
You may find a lender willing to work with you even if your FICO scores are lower if you can make a larger down payment, have residual income, or other factors that compensate for the lower credit scores.
Payment History
A borrower is generally better qualified for an FHA mortgage or refinance loan if her or his payment history is 100% on-time with no late payments in the 12 months leading up to the mortgage loan application. Who qualifies for an FHA mortgage? Those the lender can determine are good credit risks and reliable payers. If you have a missed or late payment on your credit history in the last 12 months, the lender may have a harder time justifying loan approval.
First Time Borrowers Versus Experienced Home Owners
Some lenders may offer special programs for first-time home buyers, and some local organizations may offer some form of assistance for these newcomers to the housing market. But FHA home loans do not benefit or penalize first time buyers or repeat buyers. Anyone who meets the financial qualifications for an FHA mortgage can qualify for the loan.
Landlords Welcome?
FHA loans are available for homes with one to four units. You are permitted to live in one of the units and rent out the others, but owner occupancy is a requirement for the FHA single family home loan program. You cannot use these FHA loans to purchase investment property, homes where you will not, as the primary borrower, be living full time. You can purchase mixed-use property with an FHA loan provided the home is primarily residential in nature. The non-residential use must meet FHA restrictions and be “subordinate to the residential nature of the property”.
So yes, landlords who intend to occupy the property of the home to be purchased with an FHA loan or refinanced with an FHA cash-out refinance loan are welcome to apply.
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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