You read that in The Terminator’s voice, didn’t you?
FHA loans, often known as bad credit loans, can seem confusing. While there are tons of details that will vary by lender, state, and individual borrower, here are the basics that everyone should know when starting the process.
An FHA loan is a mortgage insured by the Federal Housing Administration. Borrowers with FHA loans pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan. With the purchase of insurance, lenders can offer FHA loans at lower interest rates and with more flexible credit qualification requirements. For most borrowers, the FHA requires a down payment of just 3.5% of the purchase price of the home. In 2014, Fannie Mae and Freddie Mac reduced minimum down payments to 3% from 10%, but these loans have limited availability.
FHA is not the lender, but the insurer. To obtain an FHA loan, borrowers must go through an FHA-approved lender. Additional requirements from the individual lenders usually apply, (such as higher credit scores, income, etc…).
How does it work?
Due to the purchase of insurance, a much lower down payment is required, the minimum credit score for FHA loans depend on the type of loan the borrower needs. To get a mortgage with a down payment as low as 3.5%, the borrower needs a credit score of 580 or higher as per the FHA guidelines. Since the lenders themselves are private, additional guidelines usually apply, and they may, (and typically do,) require a credit score above 580.
People with credit scores under 500 generally are ineligible for FHA loans. The FHA can make exceptions under certain circumstances for applicants who have what is called “nontraditional credit history”, or “insufficient credit” if they meet other requirements.
If you have bad credit, or not enough credit, your best course of action is to use a credit repair program, after your credit is repaired, then start the process. By applying before your credit will qualify, you will only be hurting yourself. Find more information on the process by speaking with one of our specialists today! www.inversioncredit.com/lp -or- 1-888-682-3455
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