Bad Credit Home Loan Options with the FHA

By Gabriel Traverso
Mortgage Credit Problems Columnist

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Getting a new home with an FHA loan has its advantages. With the Federal Housing Authority (FHA) insuring the loan, lenders can generally offer better terms. Think you're locked out of an FHA program simply because you have bad credit? Think again.

The FHA loan program was created to help people get into homes--especially first-time homebuyers. However, you don't have to be a first-time homebuyer to qualify, and bad credit doesn't necessarily ruin your chances. Some of the benefits of an FHA loan are:
  • Down payment of less than 3% of sale price
  • 100% financing options available
  • Gift money can be used towards down payment and closing costs
  • FHA regulated closing costs
  • No minimum FICO or credit score requirements

Bad Credit Won't Necessarily Prevent You Getting a Loan

The goal of the FHA is to help people get into a home. Bad credit won't necessarily preclude you from qualifying for one of their home loan programs. You will need to review your credit report with a loan officer, but some of the factors the FHA takes into consideration with bad credit are:
  • Loss of a job
  • Job transfer
  • Serious illness

Bad Credit Due to Bankruptcy?

The FHA will qualify you for a home loan even if you have bankruptcy in your past. However, you must meet their requirements: the bankruptcy must be older than two years. Not even foreclosure will disqualify you, as long as it occurred at least three years ago.

The FHA has a number of loan options that might suit your needs. Whether you are looking for a 30-year fixed-rate loan or an Adjustable Rate Mortgage (ARM) the FHA can help. The FHA is an Equal Opportunity Lender and adheres strictly to fair lending practices. Don't be discouraged by bad credit in your past. Talk with your loan officer and see if an FHA loan might be the right answer for you.

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