FHA, or Federal Housing Administration, provides mortgage insurance on loans made by private, FHA-approved lenders. In some cases, FHA may allow lenders to accept loan applications from people that may present greater risk in their financial history as reflected by lower or poor credit scores or a limited credit history. For people with better or good credit, FHA is an option to consider if a low downpayment is required for purchase.
In the case of every loan application, before a borrower gets approved, the lender will take certain measures to analyze and understand the applicant’s credit history. Full understanding of a borrower’s financial background allows the lender to assess how likely they are to be a good fit for an FHA mortgage loan. A history of on-time bill payments will help position a borrower for approval. On the other hand, if a potential borrower has a poor or bad credit history that reflects a high amount of late or non-payments, this person is deemed as having poor financial judgement and may or may not qualify when it comes to approval.