How COVID Has Affected FHA Loan Requirements

How COVID has Affected FHA Loan Requirements

FHA Loan Requirements

For first-time homebuyers who may have lower credit scores and less money for a down payment, an FHA loan might be the path to homeownership.

However, with increasing unemployment during the COVID-19 pandemic, some lenders are making their requirements a little more stringent.

FHA loans are backed by the Federal Housing Administration, which is a division of the US Housing and Urban Development (HUD). What makes them attractive is a buyer can have a lower credit score and less money for a down payment than is required for a conventional mortgage.

The minimum FICO credit score for an FHA loan is 500. With that credit score, the FHA requires a 10 percent down payment. The higher the credit score, the lower the down payment necessary. With a credit score of 580, the FHA’s requirement for a down payment dips to 3.5 percent.

However, the FHA doesn’t process loans itself, private lenders do. Those private lenders may have different requirements for loan approval.

In addition to credit score, there are other elements lenders take into consideration when processing loans. Lenders will examine income, debt-to-income ratio, and where money for a down payment comes from. It may not be the difference between being accepted or denied, but a loan applicant who has saved for a down payment instead of cashing in on investments or retirement funds is likely to get more favorable loan terms.

Boosting your credit score

For loan applicants who are worried their credit score is too low, there are ways to improve them. One of the quickest ways to improve a credit score is to go over your credit report and report any errors. But perhaps the best long-term way to improve a credit score the best way to improve a credit score is to make payments on time. Developing that pattern of behavior indicates to lenders that a borrower is a lower risk to lend to.

Better Lending’s mortgage loan originator, Kim Shackelford, says quite a few clients of hers believe that they don’t make enough money or don’t have a credit score that is high enough. She said she encourages them to at least try.

She says there are other ways to improve the chances of being approved for a mortgage and getting the best rates. Loan applicants should have a complete set of bank statements. She also recommends not disregarding student loans. They are debt obligations like any other and making payments on time helps improve credit score.

Her final recommendation is not making any big-ticket purchases until after closing, such as a new car or new set of furniture.

Are you considering buying a home? Be sure to contact Better Lending at or call 888-400-1373.

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