Can You Get a Mortgage Loan With a Felony Conviction?

Individuals with a felony conviction often wonder if they can obtain a mortgage loan. While a criminal record introduces complexities, securing a home loan is not impossible. Lenders assess each applicant’s circumstances individually, considering a variety of factors.

General Mortgage Qualification Factors

Mortgage lenders evaluate several standard criteria to determine an applicant’s ability to repay a loan. A strong credit score and history are important, influencing available loan types and interest rates. Conventional loans often seek a credit score of 620 or higher, while FHA loans may accept scores as low as 580. VA loans typically have no official minimum. Lenders examine a borrower’s payment history to ensure consistent, on-time payments across all credit obligations.

The debt-to-income (DTI) ratio, comparing monthly debt payments to gross monthly income, is another factor. Most lenders prefer a DTI ratio below 43%, though some may approve higher ratios with compensating factors like a larger down payment or cash reserves. Lenders also require proof of stable employment, often looking for at least two years of consistent income in the same industry to ensure a reliable source of funds for mortgage payments. Sufficient income and cash reserves, sometimes covering several months of mortgage payments, strengthen an application.

How a Felony Conviction Impacts Loan Eligibility

While no federal law prohibits individuals with a felony conviction from obtaining a mortgage, a criminal record can influence a lender’s risk assessment. Lenders may view a felony as an indicator of potential irresponsibility or financial instability, questioning repayment likelihood. This does not mean automatic denial, but it prompts lenders to seek more information and scrutinize certain aspects of an applicant’s background.

The nature of the crime is a primary consideration, with financial crimes posing the biggest hurdle. Convictions involving fraud, embezzlement, forgery, money laundering, larceny, theft, or tax evasion are problematic for lenders. These types of offenses directly relate to financial trustworthiness and can result in a higher perceived risk. The time elapsed since the conviction is also important; older felonies (over ten years ago) are viewed more favorably than recent ones. While not all lenders conduct direct criminal background checks, gaps in employment or residency history can reveal periods of incarceration.

Exploring Mortgage Programs and Lender Policies

Different mortgage programs and individual lender policies interact uniquely with a felony conviction. Conventional loans, offered by private lenders, have stricter underwriting guidelines and are discretionary regarding criminal history. Some conventional lenders restrict loans to individuals convicted of financial felonies or certain misdemeanors within a specific timeframe, such as the past five years. These policies are not subject to anti-discrimination laws that protect against discrimination based on race or religion.

Government-backed loans, such as FHA and VA loans, approach criminal records differently. FHA loans do not require a criminal background check, but federal regulations apply. The Dodd-Frank Act prohibits individuals convicted within the last decade of certain felonies related to real estate or mortgage transactions, including fraud and money laundering, from receiving FHA assistance. For VA loans, a felony conviction does not bar eligibility for benefits unless it stems from a military court or involves offenses like treason. However, even with these programs, individual lenders can impose their own stricter requirements beyond federal guidelines, potentially leading to denial based on criminal history.

Steps to Improve Mortgage Approval Prospects

Individuals with a felony conviction can take steps to improve their mortgage approval prospects. Building and maintaining a strong credit history is a key step. This includes making all payments on time, reducing outstanding debt, and avoiding new lines of credit before applying for a mortgage, as incarceration can negatively impact credit. Lenders favor applicants with consistent employment, so demonstrating a stable work history is important.

Saving for a larger down payment can improve an application by reducing the lender’s risk and leading to more favorable loan terms. While some loan programs offer low or no down payment options, a substantial down payment shows financial stability. Addressing any outstanding fines, restitution, or other legal financial obligations demonstrates a commitment to resolving past issues and improves overall financial standing. Exploring expungement for the conviction, depending on state laws and the nature of the crime, can remove the record from background checks. Because lender policies vary, it is beneficial to shop around and speak with multiple mortgage providers to find one whose guidelines are more accommodating.