Are credit scores important to get a FHA loan?

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By: Kedy
on 21st Nov,2013

The FHA provides mortgage insurance on loans that are created and approved by lenders throughout the United States and U.S. territories.
Are credit scores important to get a FHA loan?

Since 1934, the Federal Housing Administration (FHA), has helped millions of Americans become proud homeowners. The FHA provides mortgage insurance on loans that are created and approved by lenders throughout the United States and U.S. territories. Whether you are looking to borrow money to purchase a multi-family house, single family home, apartment, or condominium, the FHA can help, provided you have an adequate credit score. There is a minimum score required to receive assistance through the FHA, and it is important to know what that number is, and how to improve your score if you fall short of the minimum standards.

Credit Score Requirements for an FHA Loan

If you are considering getting financing for a new home, you should be aware that you will need a certain minimum credit score for an FHA loan. From time to time, the FHA updates its criteria for applicants seeking loans. These changes are made based on changes in legislation, lending requirements, and related issues. In response to system-wide issues, new laws may emerge to close legal loopholes, improve the fairness and equality of the FHA mortgage loan process, or help make the program more secure. While it might seem burdensome to keep track of these changes, keep in mind that they are ultimately made for your protection and benefit. The most recent amendments made to the FHA program were enacted on September 3, 2010. On that date, the FHA set forth new guidance on the minimum credit scores required for certain FHA-guaranteed home loans. You can learn how to get an FHA loan and the current guidelines by visiting the FHA website.

Importance of Credit Scores

If you are considering applying for an FHA loan, you might be wondering why your credit score is important. If you have a score of at least 580, you may be eligible for the FHA’s low 3.5 percent down payment. If your score falls short of that number, you may still apply for a loan, but you may have to place a 10 percent down payment on your mortgage of choice – a risky and potentially worrisome amount if you are struggling financially. Additionally, having a subprime rating may result in your application being rejected. Sometimes, if there are extenuating circumstances beyond your control, such as a recent job loss, injury, or personal situation that has temporarily prevented you from making timely payments, the agency may still accept your application. If you have a history of repeated delinquent payments, or failure to pay bills, your chances of qualifying for – and receiving – an FHA loan will be greatly reduced.

Checking a Credit Score

Prior to beginning the loan application process, you will want to check your credit score. A credit score numerically represents your credit worthiness. It is valued between 300 and 850; 300 indicates the lowest score (which you don’t want) and 850 is the highest level of credit rating you can achieve. This number consists of five components: payment history, total amounts owed, credit history length, number and types of credit in use, and account inquiries. Each component has a specific associated weight that factors into your overall credit score. Your credit score is evaluated by future potential lenders to determine whether or not you are a risky person to loan money to. Typically, the higher your credit score, the lower your risk may be to the lender. You can check your score by ordering your credit report from one of the three major credit reporting agencies in the U.S. – Equifax, Experian, and TransUnion.

Your credit score is an essential factor of the FHA loan process. To qualify for a federal loan, you must have a minimum score of 580. A higher score equates to lower risk in the eyes of lenders, and will significantly improve your chances of being able to borrow money for a new home.

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