• Dreams of homeownership can still be a reality, even with a small down payment.new home image by itsallgood from Fotolia.com
  
  A mortgage backed by the Fair Housing Authority makes home ownership possible for borrowers who have considerably less than the traditional 20 percent down payment. An FHA mortgage requires only a 3.5 percent down payment and usually has lower closing costs than conventional mortgages, since most of the closing costs are included in the mortgage. The credit requirements for an FHA mortgage is a bit more relaxed than those of conventional mortgages; however, that does not mean that getting approval is any easier.
  
  

Credit Score

• As of 2010, borrowers with a credit score of 580 or better quality for an FHA loan, according to the FHA Loan website. Borrowers with scores lower than 580 will require a larger down payment of 10 percent to qualify for a FHA loan.
  
  

Credit History

• Borrowers should have at least two years worth of credit with at least four trade lines. Two years of good utility or rental payment history may be provided if a borrower has no credit. According to the FHA Underwriting Guidelines site, a borrower should have no more than two 30-day late or missed payments on their credit report, and they should not have occurred less than 12 months prior to application. The borrower must provide a detailed explanation of late or missed payments. Late payments that occurred during the same period (due to job loss or illness) are viewed less negatively than a long history of late payments.
  
  

Credit Issues

• Unpaid collection accounts that are less than two years old will disqualify a borrower from being eligible for an FHA loan. It is not a requirement under FHA guidelines to pay off unpaid collections; however, it will look more favorably if the borrower is making timely payments under a payment plan.
  
  

Judgments, Liens and Foreclosures

• Judgments should be more than two years old and must be paid in full prior to closing. Borrowers who have defaulted on a tax lien, student loan or any other federal debt are ineligible for an FHA loan. A person cannot apply for an FHA loan until at least three years after a foreclosure. According to the FHA Credit Guidelines site, an FHA loan may be granted if the foreclosure occurred due to extenuating circumstances and the borrower has since re-established financial stability and creditworthiness.
  
  

Bankruptcy - Chapter 7 and 13

• A borrower can apply for an FHA loan after a Chapter 7 bankruptcy two years after the date of discharge, provided that he has regained financial stability and re-established good credit within that time frame. Borrowers who have filed Chapter 13 may apply for a mortgage if they have made timely payments to the court for at least one year and obtain court approval.