Who Can Get a FHA Loan?

Who Can Get a FHA loan?

I will provide 3 answers to this question:

1. Individuals with no credit or newly established credit.

Occasionally a potential borrower will call, boasting of the fact that they have no credit cards, they pay everything in cash. This type of borrower falls into a small elite group which I admire but have never been eligible for membership. I believe in credit cards, if for no other reason, to establish a credit history with the bureaus (Experian, Transunion, and Equifax). No credit cards ever means no credit scores, and this limits you to the FHA loan. FHA accepts such a situation, provided you have “alternative credit,” which includes (but is not limited to) car insurance, cell phone, a utility bill such as gas, electric, or water. It goes without saying that a stellar rent history is always a plus. A lender verifying this type of credit history prefers at least 3 types of alternative credit that has an on-time, twelve month history.

2. Families with previous credit challenges but are now credit-worthy.

I have always believed in second chances and perhaps that is why I love the FHA loan; it is the “second chance” loan. Life happens to all of us, and behind this fact is a host of potential tragedies, including divorce, sickness, the death of a loved one. Such circumstances may drive several late payments or a bankruptcy that drastically lowers one’s credit score to less than 620, the magic number that enables Conventional financing. FHA is not a credit score driven loan and FHA underwriters allow written explanations for past credit problems. Sometimes these explanations will require supplemental paperwork to support them. An example includes a borrower who has written that she was hospitalized for several months during a particular year. An underwriter may ask for a doctor’s note or proof of hospitalization. A word of caution: Do not write anything that you cannot back up!

3. First-time home buyers.

HUD was created to help low-to-moderate income families. Many first-time buyers are fresh out of college, starting a new job and therefore lack an established work history of 2 years. This is only one example of the first-time buyer for there are a host of other examples which we will cover in this blog over time.

FHA also allows a borrower more acceptable sources of down payment as well as higher qualifying ratios. For these reasons, as well as others listed above, you can rely on the FHA loan. However, there are loan limits. Visit www.fha.gov to research your area.