Did you know FHA loans has been around since 1935? That is pretty amazing if you think about it, this type of loan has been around since right after the "Great Depression." Also a added benefit of FHA is that it does not have credit score requirements. With the current lending market and tighten up on credit scores it makes perfect since to look at a FHA loan. Depending on where you are going to buy will determine the max loan amount you can get with FHA. Yes, FHA loans have loan limits. Here is a link where you can look up loan limits by state and city.
Secondary Market Credit Score Requirements
With all the foreclosures going on, banking has made changes as to what type of loans they will buy. FHA does not have a credit score requirement to insure a FHA loan, but the banks that buy the loans do. For example, most lenders underwrite their loans, and then sell them on what is called the secondary market. This is a market where banks buy and sell mortgage loans. The current credit score requirement with this market is a 580 credit score. So if you have this type of credit score, you might qualify for FHA mortgage.
This type of score is not considered the best of scores, but could get you in a 30 year fixed mortgage. Your interest rate will be higher because of you credit score, but it's better than renting. Typically credit scores above a 680 is considered good credit, so if you were wondering, that is the where you should be.
Here is a credit score breakdown per "My FICO."
* Excellent: over 750
* Very Good: 720 or more
* Acceptable: 660 to 720
* Uncertain: 620 to 660
* Risky: less than 620
Advantages of FHA
Obviously FHA's biggest advantage is you can get financed with fairly low credit scores. You don't need great credit history that is required with Conventional loans. Here are some highlights to secure a FHA loan
- 3 lines of credit reporting on your credit report in good standing for the last 12 months
- If you don't have any credit, FHA requires 2 months mortgage payment in bank after closing
- Good 12 month rental history
- 2 years work history.
- You can count college as work history, underwriters like to see that you graduated, and are working in profession studied.
- Only 3% down payment, you can use Down Payment Assistance in place of this.
- No credit score requirements
- 30 year fixed mortgage
- Competitive rates
FHA is not only for individuals with bad credit. This loan is for people with good credit as well. If you have a 720 credit score, and don't want to put down a bunch of money, it makes perfect since to go FHA, as long as you are trying to buy within the FHA loan limits.
If you are in the market to buy, and you are not sure where your credit score stands, find out. Pull a copy of your credit report with credit scores. A educated consumers saves on interest rates and terms.
Fha Credit Score Requirements
Your credit score could make or break you in 2008. With all the foreclosures and defaults on credit cards, banking guidelines are getting tough. During the "Real Estate Boom" just about anybody could get a loan. Mortgage companies were just giving money to anyone that came along. Someone pulled the wool over the eyes of Wall Street. I personally was doing loans that I knew would default, but if I had denied the loan, they would have went somewhere else. The guidelines where so liberal that anyone with a job could have got a mortgage. Even credit card banks were extending credit to high risk borrowers. Now our banking and lending institutions are in a major clean up transition. I have noticed that some of the new guidelines for lending this year are getting to the point where good credit will only be allowed to get loans. It's amazing how Bankers swing from the left to the far right to make an adjustment when it comes to Credit Risk. Freddie Mac and Fannie Mae of course are in business to make money, so it's really like a cycle. Underwriting guidelines will tighten up, and then they will loosen back up.
So the question is, how long will it take for Creditors to loosen up on credit risk guidelines? Believe it or not, the U.S. had the same foreclosure crisis in 1998. The only difference was there was less publicity because there were less public traded companies involved that went out of business. So Wall Street was not affected like it has been recently. During this time of banking institutions going out of business, the Feds have lowered rates dramatically. It's a great time to buy a house if you have decent credit. So what if you don't? Maybe you are unsure where you stand with your Credit. There has never been a better time to get on top of your Credit Report than now. It really stinks to rent, drive a junk car or get denied for credit when you really need it because of your Credit Score. I personally think 2008 is a time to step back look at your personal finance and please don't try to keep up with the Jones, cause you are not going to take it with you. Just remember, good credit, good health and low debt is the path to prosperity in 2008. It really looks like Banking will tighten up over the next 3 years and the lending will never be the same again.
So if you want a piece of the American dream, please stay on top of your personal credit. Remember "Your Credit is your Life."
