November 16, 2017
What should I know about FHA loan requirements? The first thing to keep in mind is that no single factor determines your ability to borrow. Your FICO score is an important part of the loan approval process, but it’s not the only thing you will need to pay attention to in the 12 months leading up to your loan application.
FHA Loan Approval Requirements
FHA loan standards include a review of your FICO scores to determine whether you are eligible for maximum financing with a 3.5% minimum down payment. Those with FICO scores at 580 or higher are technically eligible for maximum financing. However, this is the FHA loan program minimum standard and your lender may have higher FICO score requirements.
FICO scores affect your down payment, interest rate offerings, and other areas. But your scores aren’t the only thing that can make or break a loan application.
Credit History, Not Just FICO Scores
Your credit patterns give the lender a better idea of what your spending and payment habits are like. The scores are just numbers assigned to you based on your activity, your credit history gives the actual details of your habits. The lender is required to balance your FICO scores with your actual credit behavior.
Does your last 12 months of credit activity depict you as a good risk? Or do you have late or missed payments? Is there a bankruptcy proceeding in your recent credit history? Foreclosure? The lender will be required to get answers for why these issues occurred to determine whether or not they are likely to happen again.
Compensating Factors
If you have marginal credit scores or other issues, the ability to make a larger down payment can weigh in your favor. If you are worried in the 12 months leading up to your loan application that you might not have a FICO score high enough to get maximum financing with a particular lender, consider budgeting more for the down payment. There are other compensating factors, but the down payment issue is likely to be the one that comes up first, depending on the lender.
Maintain Good Credit Habits
In the year leading up to your FHA loan application, do not have late or missed payments on any financial obligations, avoid applying for new credit cards or other lines of credit, and avoid running up your credit cards to their limit.
The late/missed payment issue is a critical one-lenders have a much harder time justifying FHA home loan approval when there are missed or late payments in the 12 months prior to your loan application.
Remember that all of these factors are combined when the lender is making a decision to approve or deny the loan. You will need to pay attention to all areas of your financial well-being in the 12 months leading up to the loan for best results.
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.
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