Obtaining a conventional mortgage to purchase a home is notoriously difficult or even impossible for buyers who have experienced credit issues in the past. Fortunately, prospective homebuyers who find themselves in this situation may still be able to become a homeowner by applying for a Federal Housing Administration (FHA) home loan. If you have blemished credit and would like to buy a home, this information may be what you need to succeed. 

Learn more about minimum allowable credit score 

Unlike a conventional home loan which often requires a credit score of 700 or above, an FHA home loan may be obtainable by borrowers who have scores as low as 500. Prospective buyers with credit scores between 500 to 579 may be required to put down ten percent of the purchase price when using FHA mortgages, while those with credit scores at 580 and above may only be required to put down 3.5 percent. 

Examples of allowable credit history issues 

Prospective home buyers who are interested in obtaining an FHA home loan often want to know what types of past credit issues are allowed. Some examples are late payments, scanty credit entries, or collections activity that have been successfully cured. It may also be possible for borrowers to use utility, rent, and phone bill payment histories to bolster an insufficient credit history. 

Borrowers may also be approved with slightly higher debt-to-income ratios than they would when applying for conventional loans. FHA home loans are also typically available to borrowers with shorter employment histories, on average about six months. 

Steps to take before making application

Prospective borrowers with blemished credit who want to increase their chances of being approved for an FHA home loan should consider taking these proactive steps before filling out an application: 

• make sure that debt, utility, phone, and other payments are made on time for at least six months before making application 
• pay off as much outstanding debt as possible to lower your overall debt-to-income ratio
• check to make sure you are not being listed as an authorized user on someone else's credit cards 

The reason for being removed as an authorized user is that any debt balances or account activity on another person's credit card will also be counted toward your own when applying for a mortgage, even if you are not actively using the card. 

To learn more about the FHA loans process and how it can help borrowers with blemished credit, make an appointment with an FHA-approved lender in your area.