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The single-family FHA loan program does not specifically offer a bad credit mortgage loan. FHA loan rules require the borrower to have a FICO score of at least above 500.

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FHA Loan Articles

News and Updates for Homeowners

Do Bad Credit FHA Home Loans Exist?

July 30, 2014 - One common question about FHA home loans goes something like this:

“Can I apply for a ‘bad credit’ FHA home loan?

The single-family FHA loan program does not specifically offer a “bad credit” mortgage loan. FHA loan rules require the borrower to have a FICO score of at least above 500. A common follow-up question many have when learning this reads like this:

"So if you have bad credit you can’t get approved by FHA? I thought the whole point of FHA was to help people with credit issues buy a home…."

The key to understanding the FHA loan program's requirements in this area is to know what the FHA loan rulebooks says about the required creditworthiness of the FHA loan applicant.

HUD 4155.1 is the FHA loan rulebook for lenders. In Chapter One, Section A, we learn that according to the FHA and HUD, the lender or underwriter is responsible for making sure the loan applicant is able to repay the loan and willing to do so based on credit scores, credit history and employment. Chapter One states:

"The purpose of underwriting is to
  • determine a borrower’s ability and willingness to repay a mortgage debt to limit the probability of default and collection actions, and
  • examine the property offered as security to determine if it is sufficient collateral."

To help make the creditworthiness determination, your lender will use something the FHA loan rulebooks calls "the Four C's of Credit". What are the Four C’s? According to HUD 4155.1:

"The underwriter evaluates the four C’s of credit to determine a borrower’s creditworthiness. The four C’s of credit consist of a borrower’s
  • credit history
  • capacity to repay
  • cash assets available to close the mortgage, and
  • collateral."

FHA loan rules state that all applicants for the loan must be checked–credit reports must be pulled, employment history and other financial qualifying information is required.
HUD 4155.1 Chapter One has rules and instructions for the lender in these areas:

“A credit report submitted with a loan application must contain all credit information available in the accessed repositories. Additionally, for each borrower responsible for the debt, the report must contain all of the information available in the credit repositories pertaining to
  • credit
  • residence history, and
  • public records information.

Note: One report is required for each borrower. The lender may obtain a joint report for individuals with joint accounts.”

If you have credit data that shows up in your credit report, but not your loan application, your lender is required by the FHA to learn more. According to Chapter One, “A lender must develop credit information separately for any open debt listed on the loan application but not referenced in the credit report.”

Any difference between what’s listed on your credit report and your application must be documented by the lender as part of the FHA loan application review process.