The following information about FHA guaranteedÂ loans for buyers with low credit scores is courtesy of a “Zephyr specific” team of individuals at Guarantee Mortgage who provide regular information and updates about the lending environment.
I want to be clear and say that just because these FHA loans exist and you can qualify doesn’t mean you should run out and buy a house. We’ve seen what unbridled enthusiasm for lending can do, but if you meet the criteria below and your financial future looks rosier than your past, then lets talk about what your possibilities in San Francisco might be. Because it isn’t clear to me, I will do some research to see if these loans are available only for single family homes or if condos are eligible as well.
With money freeing up and lenders becoming more optimistic about lending again, we have a few lenders that are willing to lend to borrowers with credit scores as low as 500.
FHA low credit loans lending checkpoints for credit scores of 500-640 FICO:
- Debt to Income Ratios of up to 50%
- Disputed accounts acceptable with Underwriter review
- Late payments OK
- Collections over $5,000 and under 2 years need to be paid off
- Verification of Rent required-timely payments
- HomeBuyer Education required
- 500-580 FICO scores – 10% down payment required
- Gift funds acceptable for down payment
- No judgments, bankruptcies, foreclosures or tax liens in past 36 months
What is the catch? There is no catch. Fannie Mae’s Automated underwriting system has been set up to accept lower FICO scores for a while now. However, there have not been any lenders that were comfortable enough to originate the business. We currently have 2 lenders that are already doing it and will probably have more in the future. Of course, the rates on these loans are higher than with FHA loans for borrowers with higher credit scores. Nonetheless, the rates are still attractive and allow borrowers to buy NOW, before rates go up in general.