Gone are the days of misconceptions that only risky and poor credit borrowers were the only ones who sought out FHA Loans to use for their home purchases. In today’s landscape I run into borrowers of all backgrounds turning to FHA Loans because it is now well known that FHA Loan Requirements are some of the best guidelines in the industry that can offer the most potential for borrowers to purchase homes and obtain a loan. Borrowers of all types from 600 FICO credit scores and below to 700+ FICO credit scores are filling out applications to get FHA Loans because they know just how good of a loan program it is. In the following paragraphs I will go over the most important items of the FHA Loan Requirements and as always if there are additional questions, or if you want to go over your personal situation, please contact me directly at 630-465-2656 as I am always available to help my borrowers or potential borrowers!
As with any mortgage product you are looking into, one of the first things that are going to happen after you fill out the application, which you can find here, is that your credit score is going to be run. There isn’t a need to worry because if there is one of the main FHA Loan Requirements that stands out to most borrowers, it is the relaxed guidelines when it comes to required FICO credit score and corresponding down payment requirement.
These two tiers of credit score requirements and corresponding down payment amounts is a main reason why FHA Loans are the most popular loan in the United States. If you do your research into other loan programs, you will be hard pressed to find a loan program that you can get approved on with a FICO credit score in the 500s. Now if you are in the 500-579 range, just having a 10% down payment may not be enough for you to get an approval from a lender as they may also want to see compensating factors in addition to the 10% down payment. These compensating factors can include additional reserves or assets to strengthen your application.
FICO credit score requirements aren’t the only items that favor borrowers in the FHA Loan Requirements as the debt to income ratio is another guideline that is favorable but is also factored using your FICO credit score.
As you can see, borrowers with a higher FICO credit score will be allowed to have more monthly debt than someone with a lower FICO credit score. Debt to income ratio is calculated by taking your gross monthly income and dividing it by your monthly debt obligations which include your future mortgage payment, credit card debt, auto loan debt, etc. Even if you have a lower FICO credit score, you at least know that you can still obtain a loan with the proper down payment amount and debt to income ratio.
If you aren’t sure what a derogatory event is on your credit report, it can be the following: Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, Short Sale, Foreclosure, or Deed in lieu of foreclosure. Just because you have had one of these situations happen to you in the past, you can still get an FHA Loan if you have abided by the mandatory waiting period for the specific event and can also meet standard FHA Loan Requirements. Your mandatory waiting period will vary on the event and they are:
FHA Loan Requirements are also pretty lenient when it comes to how they go about treating collection accounts that may be on your credit report. First of all, if you have medical collections you can rest easy knowing that the FHA Loan Requirements don’t calculate these debts against you and basically ignore them. When it comes to non-medical collections, if you have more than $1,000 in total, you will be forced to have 5% of this total factored into your monthly debts for your debt to income ratio.
If you go through the FHA Loan Requirements you will see that you are allowed to accept up to 6% of the purchase price in the form of a seller’s concession. Seller’s concessions cannot be used for down payment funds but can be used for third-party fees that appear on your settlement statement. You should try your hardest to use every bit of these funds because whatever is not used will be returned to the seller.
As you can see FHA Loan Requirements are written so that even otherwise difficult borrowers have the chance to own a home and get a mortgage. If you want me to go over your scenario with you, we are happy to do that any time, just reach out accordingly at 630-465-2656 or fill out the application here.