Guidelines for FHA Home Loans

Posted By on October 14, 2014

One of the difficulties of knowing the credit score requirements for FHA loan options is that those requirements change rapidly compared to other loan types in the industry. Even information released as recently as two years ago is out of date. Since 1934, the Federal Housing Administration, which is now a part of the Department of Housing and Urban Development, has been the only government agency that operates on its own income. This means that taxpayers do not pay the bills at FHA. The program is funded from mortgage insurance payments that homeowners pay each month.

The basic most current FHA credit score requirements for applicants who are expecting to make a down payment is 580 or better. This is not an exact number, but is typically for people who are expecting the maximum amount of financing on a new home. If an applicant has a credit score that is less than 580, he would be subject to some other guidelines.

For those whose credit score ranges from 500 to 579, financing would depend on a loan to value, or LTV, ratio. That is: the ratio of the amount of money the applicant is asking to borrow to the value or purchase price of the property he is buying. For those in this credit score range, the LTV ration is set by the FHA at 90 percent. This means that the FHA would only finance 90 percent and the applicant will be responsible for paying a 10 percent down payment.

There are special circumstances in which an FHA loan applicant would be financed at 100 percent with no down payment requirement. One is obviously a very high credit score. The other is if an applicant is a victim of a natural disaster and needs a new home. It is best to work with a mortgage specialist to determine how or if you qualify.

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