First-time home buyers may find that a loan backed by the Federal Housing Authority (FHA) has less rigid borrower requirements compared to other home loans. The down payment will be low, the income requirements will be more flexible and credit expectation is reasonable. This is because the FHA looks at the borrower’s whole financial picture and not just at one criterion.
The FHA loan requirements credit score and other credit history are taken into account for borrowers. To be a good candidate, a strong credit history is a must. The FHA requires applicants to have two lines of credit to be eligible for a loan, but they will make exceptions in some cases.
If the borrower is still paying on a Chapter 13 bankruptcy and has made satisfactory payments, they may be approved for a loan. For a Chapter 7 bankruptcy, at least two years must have passed since the discharge date, and the applicant must have a stable job, re-establish good credit and qualify financially to be considered for a loan.
The FHA will review the overall pattern of credit behavior rather than isolate late payments. Even if the applicant has made some late payments on a debt, if they have maintained a good payment pattern for some time, they will be considered for a loan.
In general, if an applicant has had their mortgage foreclosed or a deed-in-lieu of foreclosure in the past three years, they will not be eligible for an FHA insured loan. However, if there are extenuating circumstances and the applicant has since established good credit, they may be considered.
Minor collections do not need to be paid off for an applicant to get approval for an FHA loan, but any judgments will need to be paid off before closing. If the applicant is delinquent on any federal debt such as student loans or tax liens, they will not be eligible for an FHA loan.
Navigating through the paperwork can be difficult even for experienced home buyers, which is why many people choose to hire professionals. There are businesses such as Embrace Home Loans that will help borrowers find the right kind of home loan for their financial situation, including FHA insured loans.