How low can my credit score be for an FHA loan?
FHA Mortgage Insurance Update
The Federal Housing Authority (FHA) is the largest insurer of low down payment home mortgages. Lenders require private mortgage insurance for any loan with less than a 20 percent down payment. For a non FHA loan this extra expense born by the consumer is required by law to cancel when that consumer hits the 20 percent threshold in the percentage of equitable ownership they have in the home.
FHA Makes Private Mortgage Insurance Permanent
The FHA is exempted from the requirement of dropping the private mortgage insurance after the threshold of 20 percent is reached. As a measure to boost their troubled finances the agency has made the payment of this extra mortgage insurance premium permanent as of June 3, 2013. In short the consumer has the burden of the extra money for mortgage insurance for the entire life of the loan. The FHA’s finances have improved dramatically in the last year but they claim they need nearly a Billion dollars in the next fiscal year to cover the expected losses in its reverse mortgage program.
Few would question the proposition that those with a high chunk of equity in their home are less likely to walk away whn financial trouble hits. Qualified residential mortgages are a prime focus for bankers who love that 20 percent safety net in the form of a down payment. High down payment requirements keep a lot of otherwise qualified buyers out of the housing market. The focus moving forward is the ability to repay the loan. The emphasis is on affordability. The modern touchstone for affordability is debt payments limited to 43% of the borrower’s personal income. It is simply impossible for a large segment of the population to save the 20 percent down payment. That size down payment seems to have a psychological as well as practical impact when it comes to buying Real Estate. Unfortunately as with so many things in life when you’re down the rules seem to perpetuate that condition by making it ever harder to move forward. Low down payment mortgages are doable at a price.
How Low Can My Credit Score be for an FHA Loan?
Those with marginal FICO credit scores in the low 600s can qualify for an FHA loan with most mortgage writers if they can show the affordability that we just discussed. If they didn’t have some sort of problem, particularly with the down payment, they wouldn’t be going the FHA route. Many FHA loans are made with no down payment at all. The buyer is now stuck with the extra expense of private mortgage insurance for the life of the loan. A larger down payment can always be the glue to make a deal happen that otherwise wouldn’t.
if the buyer can show affordability the mortgage is doable.