Can a Felon Qualify for an FHA Loan?

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As if finding a job after release from prison wasn’t enough of a challenge, felons must also deal with finding a place to live. There are resources, however.

Many think of buying a house. They might want to explore an FHA loan. Of course, the question is whether a felon can get an FHA loan.

Let’s take a look at this possibility.

In this article, we’ll cover the following:

  • What Is an FHA Loan?
  • Who Administers FHA Loans?
  • What Are the Qualifications for an FHA Loan?
  • What Will Disqualify You From Getting an FHA Loan?
  • Background Check?
  • How Can You Improve Your Chances for an FHA Loan?
  • Recommended Action

What Is an FHA Loan?

An FHA loan is a mortgage that is insured through the Federal Housing administration. This is an agency in the U.S. Department of Housing and Urban Development.  

It is important to know that the FHA doesn’t make loans. They insure loans, though they are typically still called an FHA loan.

All actual lenders must be approved by the FHA and offer mortgage loans at lower interest rates with more flexible qualifications than other loans allow.  

Those who get an FHA loan must pay for mortgage insurance for the first five years of a loan. This protects the lender if there’s any defaulting on the loan.  

FHA loans are good for anyone who has previously declared bankruptcy or who has a lower credit score.  An application is necessary to qualify for an FHA loan.  

Who Administers FHA Loans?

FHA loans are administered by the Federal Housing Authority (FHA). The FHA was established in 1934 as part of the National Housing Act in the midst of the Great Depression.

At that time, banks had to recall many mortgages because the banks had become unstable. This left homeowners unable to pay their mortgage because many of these people were unemployed.

The FHA’s original plan was to regulate mortgages and allow more people to buy a home. They did this through insuring home loans, not making loans.

What Are the Qualifications for an FHA Loan?

To qualify for an FHA loan, you must meet certain criteria. These mainly concern your financial and income status.

The FHA will look at such factors as your:

  • Income
  • Credit score
  • Length of time with current employer
  • Ability to repay the loan

Your mortgage payment must not be more than 35% of your income before taxes. The minimum required down payment for an FHA loan is 3.5%. With closing costs this will actually come out to approximately 6%.

You must have an established credit history with at least two lines of credit, such as a student loan and a credit card.

The following are requirements for an FHA loan:

  • Proof of employment for the past two years
  • Credit score of at least 620 with fewer than two 30-day late payments in the past two years
  • Credit score of at least 580 with a minimum down payment of 3.5% of the purchase price of the house
  • The following documentation is required for FHA approval:
    • Addresses where you have lived in the past two years
    • Names and addresses of all employers plus amount of monthly wages in the past two years
    • Income tax forms for the past two years

Remember that the FHA is not a lender, it’s the insurer of the mortgage. It’s the lender who sets the minimum credit score requirements.

What Will Disqualify You From Getting an FHA Loan?

Just as the qualifications for an FHA loan are financial in nature, the factors that will disqualify you are also financial. If your debts have been turned over to a collection agency but total more than $2,000 and are unpaid, this will eliminate you.

The following will disqualify you from getting an FHA loan. 

You cannot have declared bankruptcy in the past two years or had a foreclosure in the past three years. You also cannot be delinquent on any federal debt, including restitution.

Background Check?

Mortgage lenders are not so much concerned with your criminal history as much as with financial factors. This is actually one time when there will be no background check of your criminal history.

However, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 “prohibits anyone convicted within the last ten years in connection with a real estate or mortgage transaction, of any of the following: felony larceny, theft, fraud, or forgery; money laundering; or tax evasion from receiving assistance authorized or funded by EESA” (Enhanced Employment Support Allowance for those on disability).

How Can You Improve Your Chances for an FHA Loan?

Because the factors that are essential in obtaining an FHA loan are financial, the ways you can improve your chances of getting an FHA loan are also financial.

Maintaining a consistent work history will be important. The FHA will want to see that you are stable and can meet your financial obligations. Your credit score will be extremely important. You must meet the minimum FICO score to qualify. 

Keep your loan payments on time. Be sure to have the necessary 3.5% of the purchase price as a down payment.

Recommended Action

If you are committed to buying a house and want to pursue an FHA loan, be prepared to do what it takes. You may have to live in an apartment or other short-term housing to give yourself the time you need to succeed.

Living in an apartment or other short-term housing can help. Maintain a positive work history and stay employed. Save the money you need for a down payment.

Remember to look to family and friends for support during this time.

Don’t get discouraged and give up. It will take persistence and hard work. But what hasn’t been hard since you began this journey through the legal system. You did your time, so move on.

You aren’t defined by your crime but in how you recover from your mistakes. You can meet your goal if you persevere.

What do you think about this blog post? Have you or someone you know been in the situation of trying to get an FHA loan with a felony? What was that like, and what happened? Please tell us in the comments below.

About the author

After earning his MBA from Benedictine University, Ron was looking for a new challenge and stumbled on the idea of helping the formerly incarcerated.

Using what he learned, Ron developed this website as a free resource and has worked with his team​ to continue answering questions for those in need.

6 thoughts on “Can a Felon Qualify for an FHA Loan?”

  1. Explain to me how a former felon is going to live in an apartment when the felony removes that chance? How can one rent while saving for a house?!

    Reply
  2. I’m a 3 time felon and I got a fha loan on a house with my fiancee. 2 years of employment part is on point.
    Between to 2 of us we make enough. They don’t care about your background. It’s all financial. Combine income and bam your set. And yes renting is still hard for me but I was able to buy a house? System is messed up.
    Oh well

    Reply
  3. I am a two time convicted felon, a single Mother of a severely disabled child and a Small Business Owner and as a result I am denied and or excluded from most assistance programs out there. I became a small business owner because no one would hire me. I decided to hire myself and go into business breeding Yorkshire Terriers. When the pandemic hit I was denied any help through the SBA because of my record. How my record has anything to do with the way a virus affected myself, my child, my business or my community is beyond me. When I had to shut down according to the CDC’s guidelines I don’t see how my record would make me and my business any less in need of a PPP Loan Or a EIDL advance or loan to stay afloat. What did they think I was gonna do? Shit money while I waited for everything to open back up. All I can say is that the restrictions that are placed on felons is more than likely is why a lot of felons either give up and Re-offend. Why the hell does it matter if fought through blood sweat and tears to change my whole life if no one else will ever see me as anything other than a “convicted felon.” “Why not Re-offend as a means to an end?” “Its only just to support myself and my family.” I had so much trouble renting that I almost rented a home in someone else’s name with out them knowing. Not because I was gonna skip on the rent or trash the house but because it was either that or be homeless with a 4 year old non-verbal autistic child. I am blessed that my mother stepped in a let my Son and I live with her while I got my affairs in order to buy a home. Seriously though your sentence is your punishment and most are given with and end date. So why is it that once you complete your sentence you have to be re-punished again and again by being turned down by employers, denied on rental applications, refused home loans, harassed and your earned hard time hard earned freedoms get violated every time your pulled over, better yet you get in a minor traffic accident at no fault of your own and you end up with your car turned inside out and a ticket. My mother just had code enforcement come to her home over a chimney job that the contractor skipped out in the middle of. When the marshal came I met with him and explained it was my mothers home and what had happened and that I take care of my mother. The Marshal ran my name, and saw that I was a felon and issued ME a ticket! I explained to him respectfully I was not the homeowner. His Responce was, “You just said you care for your mother did you not?” I said , “Yes” He said, ” Then this is your ticket take care of your mother. Come to court if you want and claim its cleaned up and done. I doubt anyone will believe you but if they do, when I come out to reinspect ill wright you another ticket . This can get very expensive so if I were you I would just pay it online.” I do not even RENT or OWN a home yet because of my record, the record the government gave me, and they have to stones to wright me a code enforcement ticket!!!!! When does it end? They say rehabilitation before incarceration but what the hell does it matter if your rehabilitated if your still restricted from doing or qualifying for anything that would facilitate you in moving forward and on with your life. #AllLivesMatter #RecoveredLivesMatter #EndCruelandUnusualPunishment #EndRevictimizingbyRepunishing
    #GiveMeMyNameBack #StopDiscriminationAgainsRecoveredFelons

    Reply

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