FHA loans open up homeownership to buyers with low credit scores who don’t qualify for conventional mortgages. If you’ve got an eviction (or you’re facing eviction) and wondering, “Can I get an FHA loan with an eviction?” the answer isn’t a straightforward yes or no.
Can I Get An FHA Loan With An Eviction in 2024?
The good news is the FHA itself doesn’t disqualify buyers with evictions. The problem is your eviction may have impacted your credit score and your credit history. Both of these factors mean your eviction could affect your ability to get an FHA loan.
Has Your Eviction Hurt Your Credit?
An eviction doesn’t show up on your credit report, but any debt connected to the eviction could be recorded on your credit file.
- Your landlord may have used a rent reporting service to notify credit bureaus about your monthly payments
- Your landlord may have sold your debt to a collections agency
- Your landlord may have received a money judgment during your Housing Court eviction hearing
Past-due payments and debts in collections can lower your credit score by up to 100 points each.
Do all landlords report rents and send debts to collections? No.
Will a money judgment appear on your credit report? Yes.
The FHA requires outstanding judgments to be paid in full by the purchase closing date.
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Before Applying For An FHA-Backed Loan
- Get copies of your credit reports so you know what lenders will see about your eviction-related debt
- Obtain your credit score to find out if it qualifies for an FHA loan
Get your free credit reports from Experian, Equifax, and TransUnion at: https://www.annualcreditreport.com/
Get your credit score:
- Lenders could show your credit score on your credit card or loan statements
- Your score may be available when you’re logged in to your online accounts
- Credit score services like myFICO allow you to purchase your credit score
- Credit counselors can provide you with a free credit score
Learn more about credit counseling at: https://www.consumerfinance.gov/ask-cfpb/what-is-credit-counseling-en-1451/
Credit Scores & FHA Loans
Credit scores range from 300 to 850. The minimum credit score for an FHA-backed loan is 500 which is much lower than the minimum score of 620 needed for a conventional mortgage.
Your credit score determines the minimum down payment you’ll need to make.
- A credit score between 500 and 579, requires a minimum 10% down payment.
- A credit score of 580 and over requires a minimum 3.5% down payment.
While these are the scores required by the FHA, the lenders you apply to could have additional requirements.
How Your Eviction Could Affect Your FHA Loan Evaluation
FHA loans are insured by the federal government and issued by lenders.
Your lender will first process your FHA loan application using HUD’s automated underwriting process TOTAL Mortgage Scorecard.
This first pass processes the information on your application and pulls your credit history to determine if you’re a good credit risk.
The outcome of the TOTAL process will either be Accept or Refer.
- Accept means the FHA will insure the loan without the need for a manual underwriting review
- Refer means that the loan must be manually underwritten by an FHA Direct Endorsement underwriter
Underwriting is how your lender verifies your assets, income, debt levels, credit history, and property details before issuing final loan approval.
If your application passes the automated underwriting process, you won’t usually be asked for further evidence of timely and up-to-date rental payments.
But if your application doesn’t get through automated underwriting because of your credit history, you’ll need to supply documented proof of the last 12 months’ rental payments and any other information the lender requests.
You Could Qualify For An FHA Loan Despite Your Credit History
Having credit issues won’t automatically result in an FHA loan refusal. The underwriter will consider whether your failure to pay rent or meet other financial obligations was an isolated incident or part of a larger pattern of late payments and payment defaults.
Be ready to submit a detailed explanation covering the circumstances that led to your eviction and the steps you’ve taken to clear the associated debt.
Speak To A HUD Approved Housing Counselor
While lenders will advise you about the probable outcome of an FHA loan application, you may feel uncomfortable sharing your eviction history while you’re still in the information-gathering stage.
Housing counselors help you:
- Understand if your eviction and credit history will hurt your chances of getting approved for an FHA loan
- Build a plan to tackle any issues on your credit report
- Prepare your FHA loan application
- Find FHA lenders experienced in working with credit issues
- Find programs that help with down payments and closing costs.
Services are free or low cost. Find a HUD-approved housing counselor here: https://www.consumerfinance.gov/find-a-housing-counselor/
Applying for a mortgage is stressful for everyone. It’s even more nerve-wracking when your credit history isn’t exactly spotless, but since FHA loans are designed for people with low credit scores, you could still qualify to buy a home.
Because of your eviction and related debts, speaking to a housing counselor is the best way to understand your eligibility for an FHA loan and prepare for the application.
Read Also: Lists of Eviction Friendly Apartments Near Me
Alex Graham is a co-founder and manages high-quality content that helps once evicted/ex-felons find a place to call. home. Alex believes even if he can help one person return to a good, wholesome life it is well worth the effort.