Can You Get a Mortgage With a Felony?

While a felony conviction can complicate the mortgage process, it does not automatically ban individuals from obtaining a mortgage. This article discusses lender perspectives, key approval factors, and strategies to enhance an application.

General Eligibility and Lender Perspectives

There is no federal law that explicitly prohibits an individual with a felony conviction from securing a mortgage. Instead, mortgage approval for applicants with a criminal record is left to the discretion of individual lenders, who assess overall risk. Lenders primarily focus on the likelihood of loan repayment, considering a felony as one of several factors in a broader financial evaluation.

Conventional lenders, who offer loans not backed by the government, have their own internal criteria, and a felony could potentially disqualify an applicant at their discretion. Government-backed programs, such as those insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA), do not have a universal ban on applicants with felonies. FHA loans generally do not require a criminal background check, though specific exclusions exist for certain financial crimes. Similarly, a felony conviction does not typically bar eligibility for VA benefits or home loans, unless the conviction was from a military court or involved specific serious offenses like treason.

Lenders consider an applicant’s financial responsibility and stability, encompassing income, credit score, and employment history. While a criminal record might cause hesitation, most lenders will not automatically deny an application solely due to a past conviction. Instead, they seek more information to understand the full financial picture and assess the applicant’s current capacity to repay the loan.

Key Factors Influencing Approval

The nature of the felony significantly impacts how a mortgage lender views an application. Financial crimes, such as fraud, embezzlement, or money laundering, are scrutinized most critically by lenders due to their direct relevance to financial trustworthiness and the potential for misrepresentation. Crimes of moral turpitude or those involving property can also raise concerns about an applicant’s reliability and the security of the property being financed.

The elapsed time since the conviction, release from incarceration, or completion of parole or probation also plays a substantial role. A longer period of time since the conviction generally improves an applicant’s chances, as it can demonstrate a sustained period of rehabilitation and responsible behavior. For certain FHA-insured loans, Section 1481 of the Dodd-Frank Wall Street Reform and Consumer Protection Act prohibits assistance to individuals convicted within the last 10 years of specific financial crimes related to real estate or mortgage transactions, including felony larceny, theft, fraud, forgery, money laundering, or tax evasion. This illustrates a federal guideline that can influence eligibility based on the recency and type of offense.

A clean record maintained since the conviction is important, demonstrating that the individual has avoided further legal issues or violations. Lenders evaluate whether the applicant has established a pattern of law-abiding conduct and financial stability since the past incident.

Full and honest disclosure of the felony on the mortgage application is important. Attempting to conceal a conviction can lead to immediate denial if discovered, and could even result in charges for mortgage fraud. Transparency allows the applicant to provide context and demonstrate accountability, which can be more beneficial than non-disclosure.

Strategies for a Successful Application

Building a strong financial profile is a primary strategy for applicants with a felony conviction seeking a mortgage. Lenders prioritize an applicant’s ability and willingness to repay the loan, making factors like a stable employment history, consistent income, and a manageable debt-to-income (DTI) ratio important. Demonstrating steady employment over several years and having a low DTI ratio, ideally below 43%, can help offset perceived risks associated with a past felony.

Making a substantial down payment can significantly strengthen an application. A larger down payment reduces the amount of money a lender risks, making the applicant a more attractive borrower. For instance, while FHA loans can require a down payment as low as 3.5% for credit scores of 580 or higher, a larger down payment, such as 10% for scores between 500 and 579, can reduce the lender’s exposure and potentially lead to more favorable terms.

Preparing a clear and concise letter of explanation (LOE) detailing the circumstances of the felony is a valuable step. This document allows the applicant to provide context, express remorse, and highlight efforts toward rehabilitation and positive changes made since the conviction. The LOE should avoid excuses and instead focus on accountability and the steps taken to ensure future financial responsibility, such as consistent employment or participation in relevant programs.

Working with mortgage professionals who have experience with non-traditional applicants can provide tailored guidance. Mortgage brokers and lenders specializing in these situations may have a deeper understanding of varying lender policies and can help identify the most suitable loan products. While not always required documentation, providing proof of rehabilitation, such as certificates of program completion or consistent employment records, can further demonstrate a commitment to a positive future.