American Pacific Mortgage Blog

Recovering From A Foreclosure With An FHA Loan

Written by American Pacific Mortgage | March 30, 2017 at 7:18 PM

If you’ve had to foreclose on your home in the past, you may be wondering if you’ll ever have the chance to be a homeowner again. After going through a foreclosure, it may take some time to recover, but it is possible to eventually own another home of your own.

Borrowers who have a foreclosed property in their history may be eligible to get a home mortgage with an FHA loan in as little as three years, under certain criteria.

The Federal Housing Administration insures lenders against some of the risks that are involved in lending to borrowers who don’t qualify for conventional home loans, including those who have a foreclosure in their history. Borrowers with FHA loans pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan, which allows these loans to have more lenient qualifying guidelines.


Qualifying for an FHA Loan

In order to qualify for an FHA loan, borrowers must meet certain criteria including credit score, debt-to-income ratio and down payment minimums.

Credit Score

Individuals applying for an FHA loan can typically have a lower credit score than those applying for a conventional home loan. In order to qualify for an FHA Loan a minimum credit score of 600 is a good baseline. Some lenders may allow for a lower credit score.

Buyers should start to look at their credit report at least six months before considering buying a home again. With proper time and planning, they can improve their credit score so that it meets FHA loan guidelines.

Debt-to-Income

Lenders typically make your debt-to-income (DTI) ratio one of the qualifying factors for a home purchase loan, and the same goes for an FHA loan.

FHA guidelines generally require that your total DTI does not exceed 43%. Your mortgage loan advisor can help you determine if you can use other compensating factors, such as documented cash reserves, a larger down payment (10% or more), or a demonstrated “conservative” use of credit to help overcome any DTI challenges you may have.  

Down Payment

FHA loans offer a low down payment option for buyers who don’t have a substantial down payment saved up to purchase a home. The minimum down payment requirement for an FHA home loan is 3.5%.  

Gift Funds Allowed

Gift funds may be used for 100% of your down payment. You may receive gifts from relatives, friends, and even your employer. If you want to use gift funds for your FHA loan down payment, ask your mortgage advisor for details.


Millions of homeowners lost their homes due to foreclosure between 2007 and 2014. If you were one of them, and are thinking about re-entering the housing market, talk to one of our loan advisors today. We can help you prepare for the qualification process and take a closer look at the eligibility requirements and where you stand.