Can I Get an FHA Loan With an Eviction?

When you're thinking about applying for a home loan, it's natural to question the impact your past might have on your present situation. You might be considering your rental history and asking yourself, "How does where I've lived and how I've paid my rent affect my chances of getting a loan? Can I get an FHA loan with an eviction?"

Evictions are more common than you may think. Every year, landlords across the United States file an average of 3.6 million eviction cases per year. These numbers represent real people facing financial hardships, unexpected life events, or issues with their housing situation.

Here’s helpful information to shed light on the challenges faced by those with eviction histories, while also offering guidance and hope for the possibility of a new beginning in homeownership.

Can I Qualify for an FHA Loan After an Eviction?

In short, yes, you can qualify for an FHA loan after an eviction, but there are some challenges. FHA loans have more lenient guidelines compared to conventional loans, and they assess each applicant's circumstances on a case-by-case basis. Consider a few steps you can take to increase your chances of approval.

Improve Your Credit Score

An eviction can be detrimental to your credit score. This is mainly because evictions often arise from unpaid rent or lease violations. If these unpaid dues are sent to a collection agency, they will be noted on your credit report. This can lower your credit score, which is one of the key indicators lenders use to determine your reliability as a borrower.

While an eviction can damage your credit score, it's not the only factor that contributes to your overall credit health. There are several things you can do to rebuild your credit and enhance your financial standing.

Paying all your bills on time is critical in this process. Whether it's utility bills, credit card bills, or any other debt, timely payments can positively influence your credit score. Lenders want to see that you responsibly manage your financial obligations.

Reducing your overall debt is another important way to improve your credit health. High levels of debt can signal risk to lenders and can negatively impact your credit score. Start by focusing on high-interest debts, as paying these off will save you money in the long run.

Remember, rebuilding credit doesn't happen overnight. It requires consistent effort and responsible financial habits. But with patience and discipline, it's achievable, even if you've faced eviction in the past.

Re-Establish a Good Rental History

If you've been evicted, it's essential to rebuild a positive rental history. Stay consistent with rent payments, avoid lease violations, and maintain a good relationship with your landlord. This track record will reflect positively when you apply for a home loan.

Save for a Down Payment

When you're looking to secure an FHA loan, having a substantial down payment can play a significant role in your success. Saving enough money for a large down payment shows that you can plan, budget, and prioritize your spending. 

In addition, a larger down payment decreases the loan amount, meaning the mortgage you need to take out will be smaller. This can make the monthly payments more manageable and reduce the total amount of interest you pay over the life of the loan. From a lender's perspective, a smaller loan presents a lower risk. If for some reason you were unable to repay your loan, the lender would be more likely to recoup their money.

Write a Letter of Explanation

You can write a letter of explanation that details the circumstances around your eviction. This letter should demonstrate that the eviction was a one-time event and not indicative of your overall ability to make payments.

What Is an FHA Loan?

Before delving deeper into the relationship between an FHA loan and eviction, it's helpful to understand what an FHA loan is. An FHA loan is a type of mortgage that is backed by the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development. If the borrower defaults, or fails to pay the loan, the FHA steps in to cover the lender's losses. This government backing makes FHA loans less risky for lenders.

FHA loans were designed specifically to help those who might not qualify for a conventional loan due to low income or a lower credit score. 

Federal Housing Administration loans are popular because they offer some advantages over conventional loans. For instance, they typically require a smaller down payment—sometimes as low as 3.5% of the purchase price—and are more lenient with credit scores. This can make them an appealing option for first-time homebuyers, those with less-than-perfect credit histories, or individuals who've experienced housing instability, such as an eviction. 

However, it's important to note that FHA loans come with requirements and limitations. For example, the loan must be used for a primary residence, and there are limits on how much you can borrow. Borrowers also need to pay for mortgage insurance, which can add to the cost of the loan over time. Understanding these details is crucial when considering if an FHA loan is the right choice for you.

Why Do Evictions Worry Lenders?

When a lender is deciding whether or not to approve a loan, they want to know if you will be able to make your mortgage payments on time, every month. When they see an eviction in your past, it can be a red flag. It might make them wonder if the same issues that led to the eviction could crop up again and interfere with your ability to pay your mortgage.

That being said, an eviction is just one piece of the puzzle. While it's true that it can raise concerns, lenders will also take a comprehensive look at your overall financial picture. They'll consider your credit score, which is a numerical representation of your history of borrowing and repaying money. A high credit score can indicate to lenders that you are a responsible borrower.

Income stability is another important factor. If you have a steady job with a consistent income, this can reassure lenders that you'll be able to meet your monthly mortgage payments. 

So, while an eviction can make the path to homeownership a bit more challenging, it doesn't close the door entirely. It's all about presenting a complete picture to lenders that shows you're ready to handle a mortgage, despite any past housing instability.

What Is the Waiting Period Post-Eviction Before Getting a Loan?

In some cases, FHA lenders may require a waiting period following an eviction before they consider your application. This period can vary from two to seven years, depending on the reason for eviction and the specific lender's policies.

This waiting period is an opportunity for individuals to reflect on past financial behaviors, learn from any mistakes, and take steps toward better financial health. The key to success during this period lies in using the time wisely to strengthen your position as a potential borrower.

Can I Get an FHA Loan With an Eviction?

So, can I get an FHA loan with an eviction? In most cases, the answer is yes. With thoughtful planning, financial discipline, and a focus on improving your credit and rental history, securing an FHA loan post-eviction is possible.

Every situation is unique, and the specifics of your circumstances may affect the loan process. It's beneficial to consult with a loan officer or housing counselor who can provide advice tailored to your situation and guide you through the complexities of applying for an FHA loan with an eviction history.

Check out our first-time homebuyer’s guide to learn more about how to get approved for an FHA home loan.