July 24, 2015
A recent reader question reminds us that there are plenty of myths and misconceptions about the FHA loan program that need to be addressed. The reader question asked if there were any “fair credit” and “no money down” loans for borrowers. And while that may or may not be true when it comes to other loan programs, the FHA Single Family Home Loan program does not have a “no money down” option nor does it feature a “fair credit” home loan.
FHA mortgage loans for new purchases require a minimum of 3.5% down, which must come from approved sources that have to be verified by the lender. Some borrowers may be confused at this point because of the Department of Veterans Affairs and its VA home loan program. The VA loan program does feature a no money down option, but these loans are only available to qualified borrowers who have served a minimum time in the armed services. But the same is not true for FHA loans.
It’s true that both programs are government-created and backed, but FHA and VA loans are completely independent of one another, though FHA and VA may have certain guidelines in their rulebooks for loans to borrowers who have applicable issues related to VA/FHA loans and refinancing from one to the other.
In the “fair credit” department, the FHA loan program has a minimum FICO score requirement. Borrowers with FICO scores of 580 or higher are technically eligible for maximum FHA loan financing. Those with credit scores below 580 but not lower than 500 can apply for an FHA mortgage, but would be required to make a larger down payment.
And that’s not to say that the participating lender won’t have a higher FICO score standard–lenders are free to require higher scores and often do.
The best course of action for borrowers who find themselves with lower-than-ideal FICO scores is to contact the FHA directly by calling them at 1-800 CALL FHA and requesting a referral to a local, HUD-approved housing counselor. The housing counselor will give advice related to becoming more credit-worthy and preparing adequately for an FHA mortgage.
Do you have questions about FHA loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
Browse by Date: