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FICO scores and home loans

September 09, 2008

Are you concerned that your FICO score might stop you from getting a home loan? If so, you may have more options than you believe you have.

While it's true that a higher FICO score will likely help you get a lower interest rate, you don’t necessarily need a perfect FICO score to qualify for a home loan today. On the contrary, many lenders make mortgage loans (often so-called "FHA loans") to borrowers who have a FICO score between 620 and 679, and such loans are often a good option for borrowers with FICO scores in this range.

An FHA loan is a mortgage guaranteed by the federal government through mortgage insurance, which protects the lender and is paid for by the borrower. Because of this insurance, lenders are often more comfortable making FHA loans to borrowers who don't have sky-high FICO scores.

An FHA loan might be a good fit for you if:

● You don't have a high FICO score.
● You're a first-time home buyer.
● You don't have a lot of money for a downpayment.
● You want to minimize your monthly payments.
● You're concerned that you might not be able to qualify for a conventional loan.

FHA loans tend to have competitive interest rates and be easier to qualify for than other loans. The minimum down payment will be just 3.5 percent of the home's purchase price and can be a gift from a family member, friend or other source. Of course, you should always shop around to find a loan that's right for your situation.

The only way to determine whether you’ll qualify for a home loan is to discuss your personal situation with a lender. If you have an acceptable, but not perfect FICO score, a steady paycheck and at least a small down payment, you may be well on your way to homeownership.

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