As per standard FHA rules, the minimum credit score that one needs for loan approval is 580. However, you can get approval for an FHA loan with a FICO as low as 500. How? You just need to tick a few things off the checklist and choose the right accredited lender. Given the right set of conditions, even HUD approves FHA loans with such poor credit history. Keeping that in mind, in this article we will provide you with some pointers of getting approval for an FHA loan with a 500 credit score in Chicago, IL.
Getting Approval for FHA Loans with 500 Credit Score
How does one get approved for FHA loans for buying a house with a credit score that is way below the standard cut FICO? Here’s how you can.
- The FHA parent HUD allows people with 500 FICO to qualify and get approval for the loan provided they are eligible under the automated underwriting system. Also known as AUS, it is easier to get approval under the same with a low FICO. FHA aims to promote homeownership for hardworking American citizens and to create lenient loan infrastructure to facilitate loans.
- Even with a financial history of bankruptcy and poor credit, one can qualify for FHA loans if the borrower has rebuilt a good credit report in the last 12 months. That’s how the AUS assesses eligibility.
- Can you make a down payment of 10%? If yes, then you can get your loan application approved with a low credit score. As per FHA rules, if your FICO is 500 then you are required to make a down payment of 10% if it is 560 and above then the down payment amount can be 3.5%. However, some lenders do negotiate and offer you more flexibility.
- Some lenders approve the loan if you can get it co-signed by a family member. Co-signing a loan is like placing a guarantee on the amount. It enables you to get the needed funds to buy a home in the US.
- Gift money as a down payment is another common way to fill the financial gap to get approval for the loan amount. If you have a gift amount from a relative, family member, or acquaintance, then you can use the same for a down payment. The FHA allows it as opposed to banks that process conventional loans.
To conclude, the foremost thing for getting an FHA loan with a 500 credit score in Chicago, IL approved is getting in touch with the right lender. So make sure that you research well, and find yourself the best professional in town to get fast and seamless approval for buying a home.