Getting A Home Loan With Bad Credit: FHA Loan

Despite having bad credit, obtaining a home loan is still possible with an FHA loan. These loans are little different from the rest in that they are meant to help those who have bad credit. Owning a home is encouraged tremendously and FHA loans are a means by which individuals with bad credit can hope to not only obtain a home loan, but also find the home that is right for them.


While FHA loans are meant to help those with bad credit, there are still guidelines that must be followed in order to become qualified for an FHA home loan. If you are able to make a down payment of at least 10%, the requirement for an FHA loan is to have a credit score of at least 500 or higher.

While 500 is the limit for being able to qualify, it is still recommended to build your credit up to at least 580. This opens up more options that you can use to qualify for better loans and lower interest rates. Also, a score of 580 makes is exceptionally easier to get approved in less time than with a score that falls beneath this range. Another note to keep in mind about having a credit score of at least 580 is that, with this score, your minimum down payment requirement will fall to only 3.5% instead of 10%.

Boost Your Credit Score If Needed

If you are a home buyer who will need to boost your score in order to be qualified for an FHA loan, then there are several ways in which you can do this. Here are some of the simplest methods to increasing your score.

  1. Correct errors on your credit history. When looking over your credit history, be sure that everything is correct. If you see something that is not, dispute it immediately. Small errors can take away from your overall history and credit score. Once errors are cleared up, you will notice your score go up almost immediately.
  2. Remove or settle collections. If you can settle on any of your collections, then it is a good idea to do so. You can start with the smallest collections. However, be sure that when you do make a point to settle on any collections, that you obtain written documentation of the collection agency stating they will report the settlement being paid. Simply ask the collection agency for a “pay for delete” and this should be a part of that.
  3. Pay off credit cards. Paying off credit cards is one of the easiest ways that you can see your score improve quickly. Start with the smallest balances and get them paid off first. You can move on to paying at least the minimum payment for higher balances. Also make sure that you are paying on time because this will also be reflected in your credit score.

Other Factors That Can Help You Qualify

  1. Large Down Payments. If you are able to make more than the minimum amount of a down payment, then you are more likely to be qualified for an FHA loan.
  2. Long-term accounts. If your credit history shows that you have a few accounts that you have had for several years, it is considered a benefit. This shows that you are not the type of person to open and close accounts on a whim, but that you can stick to accounts on a long-term basis.
  3. Salary increase. Any type of increase in your salary is yet another item that can help you qualify for an FHA loan. Increases in salary show that you have a better chance at affording loan payments.
  4. Debt-to-Income ratio. Keeping your debt-to-income ratio low is an extremely important aspect of your overall credit history. If you are able to keep this around 20% or less, then your chances of FHA loan approval is largely increased.

Benefits of FHA Loans

After taking a look at the qualifications, take a look at the benefits that come with obtaining an FHA loan.

  1. Credit Score. While it is suggested that you should have at least a 580 score to have an easier time getting approved, credit scores lower than this still have a chance to qualify for an FHA loan. It is hard to find lenders, who do deal with FHA loans, that will accept scores that are this low.
  2. Interest Rates. Because of the conditions of an FHA loan, you do not have to worry about high interested rates because you have bad credit. FHA loans keep interest rates low because they encourage home ownership as much as possible and have the means to work with individuals to create the best rates.
  3. Debt-to-Income Ration. While a low debt-to-income ratio is encouraged, you can still qualify for an FHA loan if you go over the suggested 20% of your total income.

To Sum Everything Up...

FHA loans are great for those who may not have the best credit, but still wish to become home owners. There are several lenders who may turn you down in the process of obtaining a home loan, but do not give up easily. There is an equal amount of lenders out there who are very willing to work with you to get you approved for an FHA loan. To make your search a little easier, you can start by researching lenders who may or may not offer FHA loans. When one lender does not work out, simply cross them off the list and go to the next.

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