Can You Get An Fha Loan With No Credit History
If youre applying for any kind of mortgage, including FHA, its a good idea to have at least two or three accounts open and reporting on your credit whether those are revolving accounts, like credit cards, or monthly loan payments. However, its possible to get an FHA loan with a thin or nonexistent traditional credit history. Before moving forward, there are some things you should know.
These loans are manually underwritten. That means your mortgage process can take longer. To get an FHA loan with no credit history from Rocket Mortgage®, you need to have a minimum of three nontraditional credit references.
Those references have to include at least one of the following:
- Utilities not reporting on the credit report
- Telephone service
The other two references may come from any of the following:
- Insurance premium thats not payroll deducted
- Childcare payments
- Retail store credit cards
- Rent-to-own
- Portion of medical bills not covered by insurance
- Car leases
- Personal loans from an individual with repayment terms in writing that can be supported by canceled checks
- A documented 12-month history of savings by regular deposits resulting in an increasing balance to the account. The account has to show at least quarterly deposits which arent payroll deducted. There should be no fees for insufficient funds
- A years worth of payments you made to an account on which youre an authorized user
How Long Do You Have To Pay For Fha Insurance
Before 2013, MIP worked similarly to the private mortgage insurance that you pay on conventional loans. Once you reach 22% equity in your home, a conventional mortgage lender automatically cancels your PMI.
Todays FHA lenders no longer cancel your MIP once you reach a certain home equity percentage. The amount of time youll need to pay MIP depends on your down payment. If you have at least 10% down at the time of your purchase, youll pay MIP for 11 years. If you have less than 10% down at the closing table, youll pay MIP for the entire term length.
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Understanding Your Debt To Income Ratio
Your DTI takes into account your debts, or fixed monthly expenses. It includes your mortgage, minimum credit card payment, student loan, auto loan and other debts. It doesnt include variable expenses like groceries, utilities, gas, health insurance and car insurance.
DTI is calculated with the following formula:
Monthly expenses / Gross Monthly Income
With a median FICO® Score below 580, your DTI cant go over 45% of your gross monthly income. These two ratios have a major impact on how much house you can afford.
In addition to the restrictions laid out above, its important to note that very few lenders offer these subprime FHA loans. At Rocket Mortgage®, you have to have a median FICO® Score of at least 580 to qualify.
Foreclosure Protections Are Still Available In Some States
Along with mortgage forbearance mandates, the CARES Act imposed a temporary moratorium preventing mortgage lenders from foreclosing on borrowers with federally backed mortgages during the COVID-19 crisis. That moratorium was extended several times, but its most recent extension was struck down by the U.S. Supreme Courta move that allowed foreclosures to resume.
However, the foreclosure moratoriums that some states and municipalities have instituted still stand. Some of these protections extend to all mortgage lenders, not just issuers of government-backed loans.
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Refinance To A Conventional Loan
Many homeowners refinance to a conventional loan when they reach 20% equity. When you have a conventional loan, you dont pay MIP. Instead, your lender might require you to pay PMI but only if you have less than 20% down. You can stop paying MIP without switching to PMI by refinancing to a conventional loan once youve reached 20% equity.
To refinance to a conventional loan, you must meet your lenders minimum requirements. Conventional loan requirements are stricter than FHA loan requirements, so you might need to take some time to build a better borrower profile before you refinance. To qualify for a conventional loan, youll need at least the following:
- A higher credit score: You must have a median FICO® Score of at least 620 points. Making your credit card and loan payments on time and limiting your spending can help you increase your score while you build equity.
- Debt-to-income ratio: You must have a DTI ratio of 50% or less to qualify for a conventional loan. You can decrease your DTI ratio by increasing your household income or paying down your debts.
- Home equity: You should have at least 20% equity in your home before you refinance. If you refinance before you have 20% equity, youll need to pay for PMI instead of MIP. PMI is more expensive than MIP, so be sure you have the right amount of equity before you refinance. If you arent sure how much equity you currently have, contact your lender.
Lender Deprives You Of Ownership
Foreclosure is the legal process by which a default causes the FHA lender servicing your loan to deprive you of your ownership rights. The average time frame for completion of the foreclosure process varies by lender and state foreclosure laws. Pre-foreclosure can begin in as few as three months of missed payments, can take more than a year to culminate. In some cases, pre-foreclosure can take several years to complete. It is certain, however, that you must eventually move out of the home after foreclosure on an FHA loan.
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Fha Mortgage Insurance Requirements
Lenders are willing to offer FHA loans because they know that in the worst case scenario, where they have to foreclose on a home, the FHA will pay them back. That’s why you’ll sometimes see the FHA described as insuring home loans.
That FHA backing is funded by you, the homeowner, via FHA mortgage insurance. You’ll be required to make an upfront mortgage insurance premium equal to 1.75% of the loan amount at closing, though this can be rolled into the loan. After that, you’ll make monthly mortgage insurance payments. If your down payment is 10% or more, you’ll have to make these payments for 11 years.
But if you make a down payment of less than 10% on an FHA loan, the only way to get out of paying monthly FHA mortgage insurance is to refinance into a conventional loan. FHA mortgage insurance can’t be canceled the way private mortgage insurance can. The amount of insurance you’ll pay is calculated based on the length and total cost of your mortgage as well as the amount of your down payment.
Disadvantages Of Fha Mortgages
FHA loans aren’t the perfect mortgage for everyone. There are certain limitations and conditions that may affect whether they’ll be the right choice for you.
For starters, there are limits on how much you can borrow with an FHA mortgage. FHA county loan limits for single-family homes range from $271,050 in most of the country to as much as $625,500 in counties with high real-estate values. .
FHA mortgage insurance is required on all FHA loans. There’s an upfront premium of 1.75 percent, plus an annual premium paid as part of your monthly mortgage payments. This may make an FHA mortgage more costly than other loan options, particularly if you have good credit. If you put less than 10 percent down, you need to carry FHA mortgage insurance for the life of the loan. Most mortgages allow you to cancel mortgage insurance once you reach 20 percent equity.
FHA home loans have stricter property eligibility requirements. Homes must pass an inspection to ensure there are no structural problems or hazards.
FHA mortgage guidelines generally do not allow them to be used to buy a second home or investment property. They can only be used to buy a property for use as your primary residence.
More information: FHA mortgage pros and cons
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Future Fha Eligibility Tarnished
Defaulting on a mortgage is one of the most serious credit missteps you can make, but foreclosure on an FHA-insured loan has unique consequences if you need a government-insured loan in the future. The FHA reports delinquencies and claims paid for federally-backed mortgages to the Credit Alert Interactive Voice Response System — a federal computerized tracking system. FHA lenders must check the system before approving a loan and can deny approval based on the past delinquency. Federal law prohibits delinquent debtors from obtaining federal mortgage insurance guarantees, according to the HUD website.
References
Can You Negotiate Out Of Pmi
Whether you have an FHA loan or a conventional loan, mortgage insurance is ordinarily not negotiable. With conventional loans, your PMI rate is partially dependent on your credit, so optimizing your credit score may lower your payments. Otherwise, mortgage insurance is automatically determined based on your loan amount, loan term, and LTV.
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How To Use An Fha Loan To Purchase A Second Home
While you may think Federal Housing Administration loans are only for first-time homebuyers, think again. While first-time buyers do indeed make up the majority of FHA borrowers , 17 percent of FHA loans actually go to borrowers who have already owned a home.
Should you consider an FHA loan for your next home purchase? Youve got questions, and weve got answers:
What Are The Fha Mortgage Qualification Requirements
The FHA program is designed for low and middle-income Americans, but you dont have to be eating ramen noodles five nights a week to qualify. There are no minimum or maximum salary requirements.
You must, however, have at least two established credit accounts like a car loan or credit cards. And you cant have any outstanding debts to the federal government.
Applicants also must have a FICO credit score of at least 580 if they want to qualify for the lowest down payment, which hovers around 3.5%. The average FICO score for a first-time homebuyer using an FHA loan was 668, in 2019. For repeat buyers it was 673.
You are not out of luck if your score is less than 580. It just means youll have to put down a 10% down payment if you want a loan.
If your FICO score is below 500, you probably are out of luck and need to enroll in a debt management program before attempting to buy a cheeseburger, much less a house.
FHA loans also have a debt-to-income requirement. That is determined by taking your monthly bills and dividing that by your gross monthly income.
For instance, if your monthly bills are $2,000 and your monthly pay is $5,000, your DTI is 40% . To qualify for an FHA loan, your DTI cannot be above 50%.
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Who Qualifies For An Fha Loan
Qualifying for an FHA loan is often easier than qualifying for a conventional loan because the credit requirements aren’t as strict. You need a FICO credit score of at least 580 to qualify for a 3.5% down payment. If your score is between 500 and 579, you can still qualify for an FHA loan with a 10% down payment from some lenders.
FHA loan qualifications are relatively straightforward, but lenders can impose their own minimums on credit scores. Borrowers pay private mortgage insurance every month, which usually has an annual cost of around 0.85% of the loan amount. The PMI is rolled into your monthly payment and protects the lender if the borrower defaults on the loan.
Once you have paid off enough of the loan that you owe 80% or less of the home’s value, you can refinance your FHA mortgage to a conventional mortgage and get rid of your PMI payment. For more information, read about how an FHA loan works.
You need a FICO credit score of at least 580 to qualify for a 3.5% down payment. If your score is between 500 and 579, you can still qualify for an FHA loan with a 10% down payment from some lenders.
Are Fha Loans For First
The property youre financing with an FHA mortgage loan must be used as a primary residence, that is, as the owner of said property, you are required to reside at that property. This is an important aspect to understand when it comes to this type of federal loan.
While FHA loans are designed to facilitate home acquisition for first-time buyers that have bruised credit score and cant qualify for conventional home loans, FHA loans are not exclusively created only for first-time buyers and you can access an FHA loan even if you have purchased a property before.
Even if the property you currently have is for investment purposes, for example, you can still be eligible for an FHA loan if youre going to use the home youre buying as your primary residence.
Any exceptions to the rule of owner occupancy is applicable only for government agencies and non-profit groups and a typical borrower is bound by the primary residence rule.
Next, lets see how things change if your existing property is also an FHA financed property, and you want to get another property financed through an FHA loan. Is it even possible? And if so, what are the requirements?
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What Happens If My House Gets Foreclosed With An Fha Loan
Losing your home to foreclosure damages your credit, finances and can hurt your sense of stability and confidence. If you obtained a Federal Housing Administration loan on your home, you likely had a minimal down payment or little equity in the home, possibly some credit challenges, and a modest income. It typically takes several years to recover from a foreclosure on an FHA-insured loan and future lenders may place additional restrictions on you for this past credit damage.
Are You Eligible For An Fha Streamline Refinance
Although the FHA Streamline Refinance bypasses traditional mortgage standards, like income verification and credit qualifying, the program does enforce minimum standards for applicants.
Youll need to show:
- Three months of on-time mortgagepayments
- At least 210 days since your home purchase or lastrefinance
- A clear monetary benefittorefinancing
- That you can lower your interest rateby at least 0.50% in most cases
The official FHA Streamline Refinance guidelines are below. Note that not all mortgage lenders will underwrite to the official guidelines of the Federal Housing Administration.
Some lenders might enforce credit score minimums or other underwriting standards for FHA Streamline mortgages.
If your current lender is requiring a home appraisal orincome verification, youre free to shop around for a more lenient lender thatadheres to the FHAs minimal guidelines for Streamline refinancing.
Perfect, 3-month payment history is required
The FHAs main goal is to reduceits overall loan pool risk. Therefore, its number one qualification standardis that homeowners using the Streamline Refinance program must have a perfectpayment history stretching back at least three months.
Homeowners with 30-day, 60-day, and 90-day late payments arenot allowed to use this refinancing option.
One mortgage late payment is allowed in the last 12 months. Loans must be current at the time of closing.
210-day waiting period after buying or refinancing
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In Certain Family Situations
Another reason HUD might allow a second FHA loan is if the borrower’s family size has significantly increased since closing on the first FHA loan. The borrower must be able to show that his existing home is not big enough to accommodate the new family. For example, if a borrower takes out an FHA loan to purchase a two-bedroom condo, and then has triplets, the borrower will probably qualify for a second FHA loan.
You can also be a co-signer on a loan for another family member when you have your own FHA loan.
How To Calculate Your Dti Ratio
There are two ways to calculate a DTI ratio. Most loan officers call one the front-end ratio and the other the back-end ratio. The FHA uses different terminology to express the same ideas. Your loan officer might use either set of terms to describe your DTI.
How does your DTI measure up? Use our quick and easy calculator to find out.
Conventional or conforming lenders call the typical maximum ratio the “28/36 rule.” For FHA loans, it’s the “31/43 rule.”
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Fha Streamline Refinance Mip
If your existing FHA home loan wasendorsed prior to June 1, 2009, your mortgage insurance premiums have beengrandfathered.
You can refinance via the FHAStreamline Refinance program and pay reduced rates for both your upfront and annual mortgageinsurance premium.
Upfront Mortgage Insurance Premiums
For an FHA Streamline Refinance that replaces a loan endorsed prior to June 1, 2009, the new FHA mortgages upfront mortgage insurance is equal to 0.01 percent of the loan size, or 1 basis point.
For example, if your new FHA Streamline Refinance is for $100,000, the FHA will assess a $10 upfront mortgage insurance premium to be paid at closing.
The FHA automatically adds the $10 payment to your new loan balance.
Annual Mortgage Insurance Premiums
Annual MIP is similarly cheap for older FHA loans. For an FHA Streamline Refinance replacing an FHA loan endorsed prior to June 1, 2009, the annual MIP is 0.55 percent annually, or 55 basis points.
The complete annual MIP schedule is as follows:
- 15- & 30-year loan terms withan LTV over 90 percent: 0.55% annualMIP, payable for the life of the loan
- 15-& 30-year loan terms with an LTV under 90 percent: 0.55% annualMIP, payable for 11 years
