January 25, 2012
We encourage readers to submit their questions about the FHA loan process and related issues by using our comments section; as a result we’ve gotten a large number of comments about the difference between FHA regulations and lender requirements.
For example, if the FHA requires a minimum FICO credit score, why does the lender require a higher score? Isn’t the borrower qualified at the lower, but still permissible score according to FHA loan rules?
This is where a great deal of confusion can and does occur, mainly because of an expectation that the FHA rules have the final say in such matters. But the truth is that FHA lenders are free to require higher credit scores and other criteria so long as such requirements are applied equally for all applicants, do not violate fair housing laws, and are considered “reasonable and customary” in the industry.
A lender could not charge 50% interest, for example, on an FHA mortgage–such rates are neither reasonable nor common in the lending industry. But charging a slightly higher or slightly lower interest rate based on a borrower’s financial qualifications IS both reasonable and customary.
If your FICO score is in a certain range, you may be eligible for more competitive terms; if your credit is in a different range, you may not be qualified for an FHA loan with a particular lender unless you have “compensating factors” such as a larger down payment, large cash reserves or other factors.
Those with credit scores near the bare minimum are encouraged to contact the FHA directly and get information on housing and credit counseling-learning how to raise your credit score is an important part of getting ready for any loan application.
The bottom line is that FHA loans do have requirements, minimums, and guidelines that must be followed, but FHA lenders cannot be forced to offer all FHA loan products or issue loans that fall outside the lender’s usual qualifying ratios as appropriate to the market.
Shopping around for the right lender is important in the FHA home loan process. If one lender won’t offer you the terms you need, try another one–you may be surprised at what you find when you shop for a home the same way many people comparison shop for a loan new or used vehicle.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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