FHA Credit Guidelines
FHA lenders are usually more flexible when qualifying you for an FHA loan based on your credit report. What an FHA lender considers "bad credit" is not the same as what a conventional lender considers bad credit, as FHA and Conventional lenders take a very different approach in qualifying you for a mortgage. An FHA loan offers a very low fixed interest rate to home owners with good credit AND to those who may have experienced credit problems in the past.
General FHA credit requirements - Quick Facts
- The minimum credit score an FHA lender will require when qualifying a borrower for an FHA loan is 580, however some lenders may take other compensating factors in to account and allow a lower score. The 3 credit bureaus, Transunion, Equifax and Experian will report your credit score to your FHA lender when a credit check is preformed. Of these 3 scores, your FHA lender will use middle of the 3. So if you received a Transunion 660, Equifax 620 and Experian 611, your FHA lender will use the 620 score as your qualifying credit score
- If your credit score is above a 580 but lower than a 620, you may incur an adjustment to your qualifying interest rate
- You can take cash out of your home up to 85% with a score as low as 580!
- If you have missed mortgage payments in the last 12 months you can still refinance your home but may not qualify to take cash out of your equity and must explain why the mortgage was late in a written letter to the FHA bank
- To qualify for an FHA loan you must have 3 open and active (for 12 months) trade lines showing on your credit report
- If you do not meet FHA's "3 open trade line" requirement you may be able to get approved for your FHA mortgage by using alternative credit such as a cell phone or electric bill to prove your likelihood of loan repayment
- If you have collection accounts reporting to credit you can still get approved for an FHA loan, although some lenders encourage you to pay them off prior to closing on your FHA mortgage if you have the available means to do so
FHA loans are generally easier to qualify for than conventional mortgage loans and the above information is intended to give you an idea of how your FHA lender may analyze your credit when approving you for your FHA mortgage.