FHA Mortgage Qualification

FHA mortgages are, in a nutshell, easier to qualify for than conventional home loans. FHA loans have a lower credit score qualification around 620 and many people have qualified for FHA loans with credit scores down to a 560. The reason being is FHA insured lenders are concerned with past credit adversities and more concerned with the borrower’s ability to repay then current loan. With as low as a 600 credit score, one can qualify for an FHA home loan and receive the same great rate (around 5.00%) as someone with a 720 credit score.

Compared with a Conventional Loan

Conventional loans mainly require a borrower to have a 660 score or better to qualify for their low rates which like FHA rates are also around 5.00%. With a conventional loan a credit score below 660 will normally yield a higher interest rate and monthly payment.

FHA Mortgage Down Payment

FHA mortgages offer the ability to buy a home with a down payment of only 3.5% with a FICO score down to 580. This is one the most attractive benefits of FHA home loans, compared to conventional loans, and makes owning a home practical feasible. The best part of FHA's low down payment requirement is that you do not get a rate adjustment for your credit score. Once you qualify for a FHA loan - you qualify - and that's it; you get all the benefits of a low fixed rate and the low down payment option if your credit score is 620 or 750.

Compared with a Conventional Loan

You may qualify for a conventional loan in some cases with a lower credit score as well. But, if your credit score is below 700 you will have to put a down payment of 20%. Why? Because conventional loans that exceed 80% loan to value require Private mortgage insurance or PMI. PMI companies will not issue mortgage insurance on a conventional loan unless the borrower has a 700 credit score or better.

Information Source: http://www.fha.com