For a lot of people, their FICO scores start out excellent and as time goes by, it will go down as you add on more debt, max out your credit cards and miss a payment or two. Basically, credit scores are the main basis of financial institutions if they will lend you money. The higher your score the better the chance that you will qualify for an FHA loan without a large down payment. But, if you do not have an above average credit score, there is still hope. The FHA does offer home loans to people with bad credit scores.
When you are planning to get a huge loan like an FHA home loan, a bad FICO credit score will really make things tough. Here are some of the qualifications that you need to meet to apply for this kind of loan.
First, the borrowers must have a FICO score of above 500. If you want to apply for an FHA home loan, you must have a score of 500 and up. If your credit score is below 500, then you are not eligible for the program. The best course of action is to work on reducing your debts and making all your payments on time. Then you can recheck your FICO score and reapply for a mortgage loan if your score has increased.
Second, borrowers can qualify for a 3.5 percent down payment option if they have a credit score of 580 and above. It only means that they can put as little as 3.5 percent down payment when they are using an FHA home loan. This is one of the main benefits of an FHA loan over a conventional mortgage loan.
Third, 10 percent down will be required from borrowers who have a FICO score between 500 and 579. If your credit score lands between 500 and 579 then you will have to put a 10 percent down payment. This shows you how big of a difference a few points on your score makes.
However, FHA home loans are not only given to people with good FICO scores. There are also FHA loans that are given to people with bad FICO scores. There are some financial institutions that are willing to provide home loans for people with bad credit.
Usually, traditional loans offer lower interest rates and they offer lower fees at closing time but what people need is an FHA home loan for bad credit to help them improve their credit scores. You must remember that FICO scores easily go down even if it is only a small mistake and it will take a very long time to bring it back up.
A lot of banks offer different kinds of loans through that FHA program. It is a program funded by the government. The loan process is very similar to traditional loans but you must be aware that it may add some extra fees. These fees are considered as some sort of penalty. The extra fees that will be incurred are well worth it because for people with bad credit, this will be their only option.
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