December 19, 2016
Your credit report and FICO scores are very important factors when it comes to getting an FHA loan approved. Do you know what your FICO score is and how it affects your home loan?
The U.S. government’s consumer watchdog agency, the Consumer Financial Protection Bureau, has a definition of FICO scores on its’ official site, which includes the following:
“A FICO score is a particular brand of credit score. A credit score is a number that is used to predict how likely you are to pay back a loan on time. Credit scores are used by companies to make decisions such as whether to offer you a mortgage or a credit card. They are also used to determine the interest rate you receive on a loan or credit card, and the credit limit.”
FICO scores are used to qualify borrowers for all types of home loans, not just FHA mortgages. But FHA FICO score requirements are, under FHA loan rules, more forgiving than some conventional mortgages. According to the FHA loan rulebook for single family mortgages, borrowers with FICO scores at 580 or higher are technically eligible for maximum financing.
What does that mean?
FHA loans require a minimum down payment of 3.5% of the adjusted value of the property. According to FHA loan rules in HUD 4000.1, borrowers with FICO scores at 580 or above are not required by FHA loan rules to make a larger down payment. Borrowers with FICO scores between 579 and 500 would be required to make a greater down payment.
It is very important to keep in mind that these requirements are the FHA loan standards-not individual lender standards, which also apply. That means that even if a borrower is technically qualified for an FHA loan with a FICO score of 580, lender standards may require a higher FICO score for maximum financing.
That’s why it’s important to shop around for an FHA mortgage-you may find a lender willing to work with FICO scores that another lender might not based on that individual lender’s standards.
FICO scores can influence the amount of down payment you have to make, but also the interest rate on your mortgage loan. The better your FICO scores and other financial qualifications are, the more competitive the interest rate offerings might be from an individual lender.
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.
Browse by Date: