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FHA Loan Credit Requirements

What Are the Credit Requirements for FHA Loans?
FHA Credit Guidelines - FHA Credit Score Requirements

FHA Loan Credit Requirements for 2019

Below are FHA loan credit requirement for 2019.  This includes requirements related to credit scores, trade-lines, and guidelines and waiting periods for major credit issues, such as bankruptcies, foreclosures, short sales, and owing federal debt.

FHA Credit Score Requirements 

Technically, the minimum credit score requirements for an FHA loan is a 500 credit score FICO score.  However, in order to qualify for a 3.5% down payment, you must have a credit score of at least 580.  If your credit score is between a 500-579, you may still qualify for an FHA loan, but will be required to put 10% down.

Related: FHA Loan Debt and Income Requirements

Major Credit Events / Waiting Periods

If you have had major negative credit events, this can potentially prevent you from being approved for an FHA loan.  This includes foreclosures, bankruptcies, short sales, and certain federal debts.

FHA Rules for Bankruptcies

The FHA guidelines regarding past bankruptcies depends on the type of bankruptcy.

  • Chapter 7 – The FHA rules for a past chapter 7 bankruptcy is that a minimum of 2 years must have passed before you are eligible for a FHA loan.
  • Chapter 13 – For a chapter 13 bankruptcy, you must show you are at least 1 year out of the bankruptcy before you can be approved for a FHA loan.

FHA Rules for Foreclosures

The FHA rules are generally that you must be 3 years out of a foreclosure.  However, if the reason for your foreclosure was due to job loss, medical reasons, or other qualifying “extenuating circumstances”, you may be eligible for FHA financing as early as 1 year past your foreclosure date.

FHA Rules for Federal Debts

Depending on the type of federal debt, it may prevent you from being eligible for FHA financing.

  • Tax Liens – As long as you have entered into a payment agreement with the IRS and are in good standing, a tax lien should not prevent you from being approved for a FHA loan.  If you have not entered into a payment plan for your tax liens, this will prevent you from being eligible until they is a satisfactory payment plan or they are paid in full.
  • Non-Tax Federal Debts – Any non-tax federal debt must be paid prior to being eligible for an FHA loan.
  • Student Loans – Having the debt of student loans will not prevent you from being able to finance a home with a FHA loan.  The payments are factored into your qualifying debt-to-income ratios (see below).

You can read more detailed information about FHA loans and federal debts.

Frequently Asked Questions

What are qualifying debt-to-income ratios?
There are two different debt-to-income ratio qualifications for FHA loans.  The first ratio (front ratio) is the percentage your new mortgage payment will be compared to your monthly income.  FHA loans allow a maximum of 31% front ratio.  The second ratio (back ratio) is your total monthly debt payments, which includes your new mortgage payment and any potential debts on your credit report, such as auto loans, credit cards, and student loans.  The maximum back ratio FHA loans allow is 43%.  If you do not meet these ratios, you may qualify with adequate “compensating factors”.

What are the “compensating factors” for FHA loans?
If you do not meet certain requirements such as the 43% debt-to-income ratio (DTI ratio), you may still get approved if you have what are considered “compensating factors”.  These are other areas of your application that reflect positively on you, which could be high credit scores, long job history, savings, assets, or anything else that factors into your overall perceived “credit worthiness” by the FHA underwriter.

Can I get a FHA loan with a judgement?
The answer to this questions is rather complex. Certain types of judgements that show a lack of ability to manage debts, or a blatant disregard to pay financial obligations can prevent your from being approved for a FHA loan. Any judgement that occurred which was not based on irresponsibility may be overlooked. We recommend starting here to learn more about the HUD/FHA requirements related to judgements on credit reports.

What are considered “extenuating circumstance”?
By definition, “an extenuating circumstance is a non-recurring or isolated circumstance, or set of circumstances, that was beyond the borrower’s control, and that significantly reduced income and/or increased expenses, and therefore, rendered the borrower unable to repay obligations as agreed, resulting in significant adverse or derogatory credit information.

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