Having a felony conviction on your criminal record can affect your life in many ways, disrupting the normalcy those with these histories so longingly seek.
If you’re looking to turn over a new leaf in life, we are happy to say that getting a home is more than possible. When applying for a home loan, whether government-backed or conventional, most lenders focus only on your financial capability to make on-time payments.
Are Lenders Required to do a Criminal Background Check?
The short answer is no, a background check is not required.
According to FHA, “The mortgagee is not required to execute a criminal background check on the borrowers.”
It is also important to note that although there are no laws that protect the characteristic of having a criminal background being discriminated by lenders, guidance released by HUD in 2016 stated that this type of discrimination can still fall under the Fair Housing Act if “a housing provider treats individuals with comparable criminal history differently because of their race, national origin or other protected characteristic (i.e., disparate treatment liability).”
In the same guidance, HUD also recognizes that easily accessible housing to those just released from incarceration is critical for their successful reentry to society.
With any home loan, you cannot guarantee that your criminal record will be checked or that it would have no impact on your qualifications. The decision to grant you a loan still falls upon the lender. Seeing a criminal record may turn them off due to it signaling possible instability from an individual.
Although most lenders don’t do background checks, it is still preferable to find FHA lenders that specifically don’t, just to be safe.
Does Having a Criminal Record Affect Getting a Mortgage?
Lenders want to lend to those that they deem stable and responsible, your criminal record may plant doubt in their minds. But because this decision is made by the lender, you have no legal protections that say a lender has to approve you for a loan.
But not all hope is lost. More often than not, the lender won’t look any further into your background if you show that you have a good credit score and a stable employment history.
Why Not Rent?
Another popular option for housing is through renting. But for felons, it’s actually easier to be approved for a home loan than rent. Many landlords do background checks on their tenants but lenders don’t. Because of this, the best way to have a home of your own as a felon is actually to save up for it.
Improving Your Financial Standing
The hardest part of getting any home loan is not overcoming the actual criminal record but rather, building up your financial standing.
Housing
First things first. You need a roof over your head and you’ll need to find short-term housing before moving forward.
Solution: This is the time to lean on your friends and family for support. Have a friend or family member co-sign for you so you can get on a lease ASAP. Also, try renting a house managed by the owner instead of an apartment because you can deal 1-to-1 with a real person vs a huge management company that apartments use.
Credit
You’re most likely going to have missed some payments while you were serving, leading to a lowered credit score.
Solution: First, get your credit checked for free online. Then get with a credit repair agency to help clean things up. The time to fix all this can vary, so start immediately.
Employment
After serving time, there’s going be gaps in your employment. Stable employment is also difficult to accomplish after conviction since many employers do background checks as far back as 7 years, sometimes more.
Solution: Take any job you can get and keep it. The only outcome you want from this is to start building your employment history, regardless of how crappy the job may be.
Money
Unless you have a nice stash saved up, odds are you’re going to need to start putting some money aside for a small downpayment.
Solution: Focus on saving up money for your down payment and closing costs. Digit.co is great at doing this for you without even having to think. It automatically puts money into savings for you based on your spending habits (and yes, you can withdraw at anytime).
Legal
During this time, it is also important that you avoid committing any misdemeanors and especially felonies. Sounds like a no brainer, but sometimes it’s not as easy at it seems.
Solution: Just stay out of trouble. Focus on the path forward. You are not defined by your crime and life moves on, so should you.
Requirements of an FHA Loan for Felons
The requirements for FHA loans are more lenient compared to conventional loans. Thus, they are a great home loan option for first-time home buyers and even those with a criminal history.
- Credit score. FHA loans are known for their low-down-payment option of only 3.5%. But note that you need a credit score of at least 580 to qualify. If your credit score is lower, you are required to pay a downpayment of at least 10%.
- DTI. The general rule for FHA loans is that your debt-to-income ratio doesn’t go beyond 43%. If it does, you will need to have compensating factors like a high down payment.
- Stable employment and income. The lender will also ask for 2 years’ worth of employment and income history through W-2 forms, pay stubs, investment statements, and annual tax returns.
- Must use the property as a primary residence. FHA loans are for primary residences only. If you will use it for other reasons like as a vacation home or investment property, then you will be disqualified.
- MIP. This stands for Mortgage Insurance Payments. With FHA loans, you are required to pay them throughout the life of your entire loan. You can opt for conventional or streamline refinancing later down the line to lower it.
Advice for Felons Looking to Get an FHA Loan
It is definitely challenging to move on in life when you have a criminal record holding you back. But if you’re determined to have a home for yourself, know that it is possible.
Focus on building your financial credibility and the lender won’t even bother checking your background history. And even if they do, your good financial standing will be much more important to them.
Remember to also note the different loan limits and rates of an FHA loan. If repair costs are more than $5,000, you can go for an FHA 203(k) loan, which is a loan mostly used for houses in need of extensive repair.
Patience and determination are key in this process. But of course, who wouldn’t want a lending hand? Don’t hesitate to check eligibility whenever you’re ready to take action and get those keys to your new home!
