What Credit Score Is Needed with FHA Loans?
Today, the minimum credit score on FHA loans is only 500. That means even if you have past credit problems, there is a good chance you may be eligible for a FHA loan. The FHA credit score requirements have always been easier than the conventional programs, like Fannie and Freddie. In 2018 the credit score for FHA loan program continues to be an attractive feature because the Department of Housing and Urban Development encourages lenders and bankers to take more risks on borrowers with credit scores as low as 500. Borrowers are beginning to realize how special 500-credit score loans have become in today's market.
For limited or no credit scores, lenders typically refer borrowers to FHA loans because they approve financing beyond fico scores. Most traditional lenders use the credit score system as the centerpiece for underwriting guidelines. Fannie Mae, Freddie Mac and most subprime lenders use the middle credit score are the primary factor when evaluating a loan approval. With a minimum credit score of 500, it is safe to say that the Federal Housing Administration continues to be aggressive with lending. Many new house buyers have not established much credit, and some do not even have a fico score yet. Mortgage rates for FHA have fallen once again near record territory. The Federal Housing Administration is a great option for people with no credit scores looking for a no credit score FHA loan.
Which Mortgage Loan Programs Still Approved for 500-Credit Scores?
Most conventional lenders expect borrowers to have credit scores above 620. In most instances, Fannie Mae and Freddie Mac issue lending guidelines that mandate that borrowers have credit scores between 600 and 800. As previously mentioned, FHA approved home loans with a 500-credit score if the applicant meets all of the other requirements. The VA program still has no minimum credit scores for eligible applicants. The USDA program is seeking a 620 minimum credit score as of 2018. There are private-money lenders continue to advertise mortgage loans with no credit score minimum, however the rates are typically higher.
How to Buy a Home with FHA even if you have No Credit
Consider a no credit mortgage from FHA, if you haven't been able to establish enough credit for Trans Union, EquiFax or Experian. FHA mortgage guidelines continue to focus on the borrower's willingness and ability to repay a loan and a credit score is only one level of measuring this. FHA allows alternative credit with the use of rental history and utility bills. Consumers like FHA mortgages for bad credit home buying, renovating and refinancing homes. BD Nationwide provides cost-effective FHA mortgages across to qualified borrower in the U.S. FHA remains the most popular government financing options this year.
The Federal Housing Administration will still consider no credit mortgage loans, but they must be approved by an approved FHA underwriter. In most cases applicants seeking no credit loans will need to document some payment history with a landlord. In some cases, the underwriter may request cancelled checks and bank statements in an effort to show a steady pattern of paying rent. If you want to be considered for a no credit score mortgage, please complete the loan quote form above and you'll be able to learn more about your eligibility. Find out if you are eligible for a FHA low-down-payment loan with below average credit score. Check Rates on FHA First Time Buyer Loans.
FHA Credit Requirements for Home Buying in the US.
After the last financial downturn, millions of Americans lost their homes and have severe credit problems. With a lower credit score, a lot of Americans may think that they cannot qualify for a home loan; you often read news reports about needing a 740-credit score and 20% down to buy a home.
This is not really true. You do need a higher credit score and down payment to get the best conventional loan interest rates. But the FHA program that is supported by the Federal Housing Administration helps millions of Americans get a home even if they have a lower credit score and down payment.
In fact, you are in luck with FHA loans: A few years ago, the FHA dropped the minimum credit score for a home loan to just 500. If you know much about credit scores, you know this is a very low score. In fact, there are people who have a recent bankruptcy on their record that never had a credit score that low. So, it is more possible these days than you think to get a home loan through FHA.
Here is how the minimum FHA credit score stacks up against other mortgage programs:
- VA home loans – no minimum credit score, but you need to be a military veteran or active military to qualify
- USDA zero-down loans – minimum score is 640, and you must be buying a home in a designated rural income with an income that is not above USDA requirements for that region
- Conventional loans – minimum credit score of 620
While FHA can approve a 500-credit score mortgage, bear in mind that FHA approved lenders may require a higher credit score than that. If they will approve you for a home loan with a 500-credit score, you need to put 10% down. The minimum requirement for 3.5% down is 580.
According to FHA statistics, FHA will approve 96% of buyers with a 580 FICO score. The 3.5% down payment program for that level of credit score is one of the best and most lenient in America today. Another advantage of FHA financing is underwriting is more forgiving and flexible.
FHA loans for people with bad credit are much easier to get than conventional loans, and you can get a very good interest rate too, but do not think this is a subprime loan program. It does allow lower credit scores, but it will not approve applicants who have a lot of recent missed payments. The government still insures home loans for people with 500-credit scores, if the approved underwriter signs off on it.
One thing to understand is that you can have a lower credit score and not necessarily have a bad recent payment history. For example, you could be using a lot of your credit lines. While this does lower your credit score and make you a higher risk, you can have a high credit utilization but always make your payments on time.
Another example is having a lot of credit card accounts or too many new accounts. Also, your credit history may be short. Probably the most common issue though is you have a recent negative event on your credit report, such as a foreclosure or bankruptcy. If you have one of these negative events on your report, you could have a lower credit score even though you have been paying your bills on time for several years.
You also can get FHA financing even if you do not have a credit score at all. For example, there are some borrowers who pay cash for everything and have never had a credit card or car loan. FHA rules state that they cannot deny you automatically because you do not have a credit history. Instead, FHA should make an attempt to collect payment history with alternative means, such as utility bills, cell phone bills, insurance payments, etc.
If you have a bankruptcy on your record, you will generally need to wait at least two years after the file is closed, but some people can get approved after a year if they show they have reestablished credit. If you have a foreclosure, you usually need to wait three years to apply for an FHA loan.
The bottom line on FHA loans and credit is that it is easier today than ever to get a home loan with FHA. But you do need to show you have a solid recent payment history if you have a low credit score.
Whether you need to refinance out of your high rate ARM or get cash out and consolidate bills, our lenders can help you compare no credit mortgage loans. Talk to loan officers that can help you understand guidelines and lending requirements on FHA and sub-prime programs.