FHA Loans Can Be A Good Option for First-Time Homebuyers

“FHA borrowers must also be aware that relatively small declines in home values could cause some to be ‘underwater’ on their mortgage with low equity investments in the property,” Cahoon said.

Lower Credit Scores Pass the Test

Under FHA guidelines, if your score is between 580 to 600, you could qualify for a mortgage, said Jason van den Brand, CEO of Lenda, a San Francisco-based online home mortgage service.

If your credit score is lower because of your current debt levels, FHA loans have more lenient credit parameters, said Staci Titsworth, a regional manager of PNC Mortgage in Pittsburgh. Consumers who have limited or bruised credit with a reasonable written credit letter of explanation isolating that its not a pattern are likely to get approved for an FHA loan, she said. Consumers can also carry a heavier debt load, and this allows the customer to afford a higher house payment.

Its not only your credit score that makes you eligible for an FHA loan. You will need to supply proof of your income to calculate your debt-to-income ratio. FHA wants to make sure that 41% to 43% of your monthly gross income can be applied to making the minimum payments on all of your monthly debts, including revolving charges and installment loans, said Scott Smith, president of CreditRepair.com, a Salt Lake City-based credit repair company.

Since the housing crisis and on-going financial recession has affected so many consumers, the FHA offers a loan program that takes into consideration your individual situation. If your lousy credit is due to circumstances beyond your control and not ineptitude at managing your money, the FHA offers its Back to Work program.

This enables consumers who are simply the victims of bad luck to become eligible for a loan after a term of unemployment or under-employment which limited their income, Smith said.