FHA Loan Credit Scores
The FHA program is setup to make home ownership easier. Credit scores as low as 500 are eligible for FHA loans. The reality is that those with "credit issues" and/or lower credit scores often find that FHA loan offers the easiest path to underwriting approval. Borrowers with perfect credit can also benefit because the FHA program allows 3.5% down payments. No matter your score, FHA loan may be a good fit for you.
The general rule of thumb is that better credit score result in better interest rates for borrowers. On purchases, tour credit score must be 580 or higher to be eligible for maximum financing which requires to make a 3.5% down payment. Borrowers with a credit score below 580 and above 500 can still qualify for an FHA loan but would need 10% down payment instead.
For refinances, the fact that home values have increased so much in the last 2 years gives an opportunity to home owners of all credit profiles to benefit. If your FICO is over 500 and you have at least 10% equity, you have opportunities to refi your FHA loan. Many times the payoff of debt thru the refinance process allows borrowers to improve their scores. This, in turn, opens the possibility for more traditional conventional financing at a later date.
Credit scores are not the only requirement for FHA loans loan, always talk to a mortgage professional to see if you qualify and help guide you through the decision.
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