With thousands of homeowners turning towards federal programs for home loans, a popular option amongst them is the FHA Loans for bad credit. Apart from the fact that FHA insures this loan which secures the lender, it provides numerous benefits for the borrower as well. These benefits are in the form of lower down payments, income requirements and leniency for credit scores making FHA loans a perfect option for those with bad credit.
If you are amongst those who find it difficult to qualify for a loan due to your shaky credit history, we suggest that you go through our guidelines that will give you an idea on the steps you can take to get approval for a FHA loan.
Credit score boost
Although the basic credit requirement for FHA loan tends to be around 500 this value tends to differ amongst the different FHA lenders who have implemented their own credit score criteria. Although most FHA lenders are willing to work with you if your credit score is at least 580, a higher down payment of around 10% would give your application a boost. Raising your credit score by reducing the total amount that is owed on credit cards can give a big boost to your credit score.
Most lenders, when you apply for a loan, tend to require a minimum down payment of at least 20%, however with FHA loans, that requirement is lowered. Provided you have a strong credit history with a high credit score, you only have to pay a 3.5% down payment. But for those who have a lower credit score will need to put a 10% down payment for the FHA loan approval.
Savings and Income
In order to increase your chances of qualifying for a FHA loan, an increase in income will lead to an increase in savings. A larger amount of reserves in the bank will increase your chances of getting a loan approval and a reserve of several months of payments will reflect not only your ability to pay the loan payments but would also reflect a more responsible behavior to the lender.
Joan Gallardo with his 18+ years of experience as Senior Loan Officer is a wealth of knowledge dealing with FHA loans for bad credit. Read his articles to know about Government loan programs that are available for borrowers applying for a loan along with tips for the FHA loans.