FHA Home Loans

Possibly, but the lower the score, the harder the loan becomes.

FHA guidelines technically allow scores down to 500. A score of 580 or higher can qualify for the minimum 3.5% down payment, while scores from 500–579 require at least 10% down.

In practice, though, lender availability gets much tighter as the score drops. Most FHA lenders will not go below 580. Some will allow scores in the 550s, and far fewer will consider a borrower all the way down to 500.

Even when a lender allows the score, approval is not automatic. At lower credit scores, the rest of the file matters even more: recent payment history, debt-to-income ratio, reserves, collections, charge-offs, gift funds, and other risk factors can all affect the Automated Underwriting System result.

So while FHA may technically permit a score in the 500s, the real question is whether there is a lender willing to accept that score and whether the rest of the file is strong enough to support an approval.

Yes. Having little or no traditional credit is not the same thing as having bad credit. FHA guidelines specifically allow borrowers without an established credit score to be evaluated using nontraditional credit. HUD also states that a lack of traditional credit history by itself cannot be the sole reason for denying an FHA loan.

Instead of relying only on credit cards or installment loans, the lender may be able to document a history of recurring payments such as rent, utilities, telephone or internet service, insurance, or other eligible obligations. FHA generally looks for a documented payment history that shows the borrower has been managing regular financial obligations responsibly.

That said, a borrower with no score is not automatically approved. Nontraditional credit files usually require more documentation and may be manually underwritten, and individual lenders can have overlays that make these loans harder to place.

So if you simply have not used much credit, that does not necessarily prevent you from buying a home with FHA. The key is being able to demonstrate a reliable history of paying the obligations you do have.

Yes. FHA allows the entire required down payment to come from eligible gift funds, as long as the gift comes from an acceptable source and is properly documented.

But this is where the guideline and the actual approval can be very different.

Just because FHA allows 100% of the down payment to be gifted does not mean the Automated Underwriting System will approve the loan. When a borrower has no funds of their own invested in the transaction, especially with a lower credit score or other weaknesses in the file, that can add another layer of risk.

In practice, this is a common reason an FHA file can go from an approval to a Refer/Eligible finding. A borrower with their own accumulated savings, money available for closing, and reserves after closing generally presents a stronger overall profile than a borrower relying entirely on gifted funds.

Gift funds can absolutely make a purchase possible, but they should never be treated as an automatic approval. FHA allowing the gift and the borrower qualifying with the gift are two different questions.

Generally, FHA requires a three-year waiting period after a foreclosure before you are eligible for a new FHA-insured mortgage. The important detail is that the three years are measured from the date you actually transferred ownership of the property to the foreclosing lender or its designee, not necessarily the date you stopped making payments or the date the foreclosure process started.

That distinction matters because foreclosure timelines can drag on for months or even years. In some cases, borrowers think their waiting period started much earlier than FHA actually recognizes.

There are limited exceptions for documented extenuating circumstances that were beyond the borrower’s control, but those exceptions are narrow and must be well supported. Divorce by itself, for example, is not automatically considered an extenuating circumstance under FHA guidelines.

So when reviewing a past foreclosure, the first step is to identify the actual date title transferred out of the borrower’s name. That date usually determines when the FHA three-year clock begins.

It depends on the type of bankruptcy.

For a Chapter 7 bankruptcy, the standard FHA waiting period is generally two years from the discharge date, not the filing date. During that time, the borrower should have either re-established good credit or avoided taking on new credit obligations. FHA does allow limited exceptions between 12 and 24 months when the bankruptcy resulted from documented extenuating circumstances beyond the borrower’s control, but those exceptions are not easy to qualify for.

A Chapter 13 bankruptcy is different. FHA may allow a borrower to qualify while still in the repayment plan once at least 12 months of the payout period have been completed, all required payments have been made on time, and the borrower has written permission from the bankruptcy court to obtain the mortgage.

There is one important underwriting distinction: if any bankruptcy was discharged less than two years ago, FHA requires the loan to be downgraded from an automated approval and manually underwritten.

So bankruptcy does not necessarily mean waiting years to buy a home, but the type of bankruptcy, discharge date, payment history since the bankruptcy, and whether the loan must be manually underwritten can all affect the answer.

No. This is one of the most common misunderstandings with FHA loans.

If both spouses are going to be borrowers on the mortgage, FHA evaluates both borrowers. Each borrower has a qualifying credit score, and when there is more than one borrower, FHA uses the lowest qualifying score among the borrowers for the loan. You cannot use one spouse’s better credit score while using only the other spouse’s income.

Likewise, if one spouse needs the other spouse’s income to qualify, that spouse generally has to be a borrower on the loan. Once they are on the loan, their credit becomes part of the underwriting decision too.

For example, if one spouse has a 720 qualifying score and the other has a 590, adding the 720-score spouse does not make the loan a 720-score FHA file. The 590 score is still the qualifying score that drives the loan.

This is why adding a spouse with better credit does not “average out” or replace the lower score. Sometimes the better solution is for the stronger borrower to qualify alone, if their income is sufficient. Otherwise, the loan has to be structured around the credit profile of both borrowers.

Yes. One spouse can obtain an FHA loan without the other spouse being a borrower, provided the spouse applying for the mortgage can qualify using their own credit and qualifying income.

In most states, this can be particularly useful when one spouse has substantially better credit than the other. The lower-credit spouse can remain off the mortgage, and their credit score is not used to qualify the FHA loan.

There is an important exception in community property states. FHA requires the debts of a non-borrowing spouse to be included in the borrower’s qualifying ratios when the borrower resides in, or the property is located in, a community property state, unless a particular obligation is excluded under that state’s law. The non-borrowing spouse’s credit report is obtained to identify those debts, but their credit history itself is not used as a reason to deny the FHA loan.

The nine community property states are:

Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

So outside of a community property state, leaving a spouse off the FHA loan can often isolate the stronger borrower’s credit profile. In a community property state, the spouse can still remain off the loan, but their debts may still affect how much the borrowing spouse can qualify for.

FHA requires student loans to be counted in the debt-to-income ratio, even if the loans are deferred or currently show no payment due.

If the credit report shows a monthly payment greater than $0, FHA can generally use that reported payment. If the actual required payment is lower than what appears on the credit report, the lender may be able to use the lower amount with proper documentation from the student loan servicer.

If the credit report shows a $0 monthly payment, FHA generally requires the lender to use 0.5% of the outstanding student loan balance as the monthly obligation.

For example, if the student loan balance is $60,000 and the reported payment is $0, FHA would generally count $300 per month toward the borrower’s debt-to-income ratio.

This rule matters because borrowers are often surprised that a deferred loan still affects qualification. The payment does not simply disappear from the calculation because nothing is currently being drafted from the borrower’s bank account.

The key is to review the actual credit report and student loan documentation before assuming what FHA will count.

Not necessarily. FHA does not automatically require every collection or charge-off to be paid before closing.

For non-medical collections, the important threshold is the total outstanding balance. If the combined balance of the borrowers’ collection accounts is $2,000 or more, FHA requires the lender to account for that debt in one of three ways: the collections can be paid off, the borrower can have a documented payment arrangement and use that payment in the debt-to-income ratio, or the lender can use 5% of the outstanding collection balance as a monthly payment when no payment arrangement exists.

For example, $6,000 in qualifying collections could result in a $300 monthly debt being added to the borrower’s DTI if there is no documented payment arrangement.

Medical collections are treated differently and are not required to be paid off or included in the qualifying ratios under FHA guidance.

Charge-offs are also different from collections. FHA does not require a charged-off account to be included as a monthly liability simply because it appears on the credit report.

But none of this means collections and charge-offs are irrelevant. The Automated Underwriting System still evaluates the borrower’s overall credit profile, and a pattern of unpaid derogatory debt can affect whether the loan receives an approval. On a manually underwritten loan, the circumstances surrounding serious derogatory credit become even more important.

So the question is not simply whether an old account must be paid. It is how FHA requires that account to be treated and what the rest of the borrower’s credit history looks like.

FHA allows the seller and other interested parties to contribute up to 6% of the sales price toward the borrower’s allowable closing costs. That can include items such as lender fees, title and settlement charges, prepaid taxes and insurance, discount points, and even the FHA upfront mortgage insurance premium.

For example, on a $300,000 purchase, the maximum interested-party contribution would be $18,000. That does not mean the borrower automatically receives $18,000. The credit can only be used for actual allowable costs of the transaction.

Seller concessions also cannot be used to satisfy the borrower’s required minimum down payment. The down payment still has to come from an acceptable source, such as the borrower’s own funds or eligible gift funds.

In practice, seller-paid closing costs can be extremely valuable on an FHA purchase because they may significantly reduce the amount of cash a borrower needs to bring to closing. The key is negotiating the right amount based on the estimated closing costs rather than simply asking for the maximum 6%.

Yes. FHA allows a non-occupying co-borrower, which can be extremely useful when the person buying the home needs additional qualifying income but the other borrower will not live in the property.

The important catch is the down payment.

For a typical FHA transaction with a non-occupying co-borrower, the maximum loan-to-value is generally 75%, which effectively means a 25% down payment. However, FHA allows financing up to the normal 96.5% loan-to-value when the occupying borrower and non-occupying co-borrower are family members.

There are two important exceptions. Even when the borrowers are family members, the higher 96.5% financing is not available when:

• a family member is selling the property to another family member who will use a non-occupying co-borrower, or
• the property is a two- to four-unit home.

So, for example, a parent may be able to co-borrow with an adult child buying a one-unit primary residence without having to move into the home, and the loan may still qualify for FHA’s minimum down payment.

The non-occupying co-borrower is a real borrower, though. Their income, debts, credit, and financial obligations become part of the FHA underwriting decision, and they are legally responsible for the mortgage even though they will not occupy the property.