We get many questions in the comments section about credit requirements for FHA mortgage loans and refinance loans. Borrowers want to know if their credit scores are good enough, whether late or missed payments could be a factor in loan approval, or whether or not a certain type of income is acceptable for an FHA mortgage loan.
In general terms, some credit issues depend on the lender. For example, FHA loan standards permit FICO scores below 600, but lenders tend to approve loans for borrowers with FICO scores in the mid-600s. The higher standards are lender requirements and this is allowed under FHA loan rules as long as the lender applies the higher standards in accordance with federal law.
Lenders may require higher down payments from borrowers who don’t meet their FICO score standards, and in some cases (depending on the FICO score and other financial qualifications) a borrower’s FICO scores might not be good enough to qualify for a home loan or certain types of refinancing with that specific lender.
Borrowers who have late or missed payments on their financial records are strongly encouraged not to apply for an FHA mortgage loan until they have a minimum of 12 months of on-time payments on the books. The “12 month rule” is something you may find as a universal among lenders for many types of loans.
Naturally, a lender working together with a borrower to refinance a delinquent loan would have a different set of considerations, but if you seek cash-out refinancing, for example, observing the 12 month rule will serve you very well.
Some borrowers want to know if certain types of income are acceptable to the FHA or the lender. Depending on the type of income, lender standards may apply, but when it comes to public assistance or government benefits like Social Security, FHA loan rules do not say a borrower is unable to use such income to qualify.
However, the lender is required to verify all income sources and determine whether they are likely to continue–that is a very important part of the income verification process. If the lender can’t determine that a type of income is likely to continue it may not be counted as income for the purposes of loan approval, and that is a factor all borrowers should consider.
If you have questions or concerns about your ability to financially qualify for an FHA mortgage, call the FHA directly at 1-800 CALL FHA to request a referral to a local HUD-approved housing counselor who may be able to answer your questions and provide advice about preparing for an FHA loan or refinance loan application.
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