Ninety-nine percent of the U.S. population met the minimum credit score requirement to receive a Federal Housing Administration mortgage, according to Score Truth. The minimum credit score to acquire an FHA-backed mortgage is purposely low because the agency's directive is to help first-time borrowers acquire a home loan when they would not normally qualify on their own. Not all credit scores will qualify for maximum financing, but most do.
Identification
As of 2010, borrowers must have a credit score of at least 500 to qualify for an FHA-backed mortgage, according to FHAInfo.com. Almost all borrowers meet this credit score requirement, because it comes close to the lowest possible rating on the Fair Isaac risk model scale -- 300. People with a score of 500 or below tend to have several missed payments, probably more than 60 days late, collection accounts and bankruptcy on file. At a score of 500, the borrower is considered a high risk or subprime and most private lenders won't even look at his application.
Loan-to-Value Ratio
Borrowers who have a score of less than 580 do not qualify for 100 percent FHA financing. Instead, the applicant must come up with 10 percent of the property's value in cash or collateral as of 2010, according to Tami Luhby of CNN. The FHA had previously allowed anyone who qualified to receive full financing, but the FHA's reserve fund -- meant to repay a loan when a homeowner defaults -- was below the Congressionally mandated limit due to the housing crisis of 2006 to 2009.
Nontraditional Credit History
The FHA accepts nontraditional credit histories. However, the applicant must have three credit references -- at least one from Group I and Group II references -- from the past 12 months. Group I includes creditable accounts, such as rental history, utilities, cable TV statements and even canceled checks from renting a dwelling from a family member. Group II includes creditable transactions, such as insurance, school tuition, any type of lease and even bank statements that show a regular savings history.
Tip
If your credit score does not qualify for complete FHA backing, you might be able to get a down payment assistance grant from nonprofit organizations such as AmeriDream and Nehemiah, suggests FHA.com. You could wait to apply for the loan until your credit improves. Paying bills and eliminating any debt might be all you need to do. Also, ensure you meet other FHA basic requirements. You must, for example, have at least two years of stable job history with a consistent or increasing salary.
0 comments:
Post a Comment