What Credit Score do you need to get FHA Loan?

An FHA loan is a type of mortgage that comes insured by the Federal Housing Administration (FHA); hence the name. These are often more popular among people who are first time home buyers. The reason is the down payment of 3.5 per cent and credit scores of 580 and more. Although, borrowers of the FHA loan have to pat the insurance premiums. This is what protects the lenders against the risk of borrower default.

History of FHA Loans

The FHA is a program that was created due to the excessive number of foreclosures and defaults. This situation was created in the 1930s and the lenders needed insurance to boost the housing market. The program made it easier and affordable for home buyers due to the lower down payments and credit score requirements. The FHA program is aimed at reducing the risk of lenders when the borrowers defaulted on their mortgage payments. These lenders get approved by the FHA in order to offer such a loan.

Requirements for FHA Loans

There are 2 basic requirements to qualify for the FHA loan. If you want to buy a home through the FHA, then you must pay a 3.5 per cent down payment and have the minimum credit score of 580. A credit score is the grading n your credit report that shows the ability and responsibility to pay back the loan. Almost all loans require a credit rating on the borrower’s behalf so the lender can reduce their risk.

A credit rating of 780 and more is excellent while that of 680 and more is good. 640 and more is considered fair while below that is bad credit. A person with no history of payments, credit bills, or debts is considered to have no credit.

Considering these numbers, a credit score of 580 is quite reasonable for a home loan. In case you don’t have a score of 580, then you are not necessarily disqualified from the FHA loan. Instead, you can still apply but will have to pay a minimum down payment of 10 per cent.

Apart from these 2 basic and major requirements, there is a list of other requirements for applying for the loan. This includes employment history, social security number, availability only for primary residence occupancy, property appraisal from an FHA-approved appraiser, and more. The complete list of requirements can be checked on the FHA’s website.

Benefits of Applying for an FHA Loan

FHA loans are easier to qualify than for than your average mortgage when you are looking to finance a new home. One will also receive competitive interest rates, lower fees, lower credit rating, and no restriction related to having previous bankruptcy or foreclosure records.

Before applying for the FHA loan, you should learn more about it on the FHA website. You should seek the loan only from an FHA-approved lender. Before paying 10 per cent on the down payment in case your score is lower than 580, you may want to try quick ways of boosting it.

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