The FHA recently published “The Facts on FHA” on the official blog of the Department of Housing and Urban Development. One of the highlights of that post included a list of actions FHA and HUD have taken since 2009–more steps “to eliminate unnecessary credit risk and assure strong premium revenue flows than any Administration in FHA history” according to acting Federal Housing Administration Commissioner and Assistant Secretary for Housing, Carol Galante.
One of the changes made by the FHA in recent times is an update to the required combination of FICO score requirements and down payments.
According to Galante, “New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%. This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.”
But many borrowers with credit scores at or near 580 find themselves wondering why they cannot get an FHA home loan even though they technically meet the FHA 580-or-higher FICO requirement.
This is because many lenders require a FICO score of at least 620 in order to qualify for an FHA home loan. Just because the FHA minimum is 580 does not mean the lender’s standards necessarily follow suit. Since the FHA is a voluntary program and lenders are not required to participate, the FHA cannot force the bank to lower its FICO requirements.
What is an FHA borrower to do if that FICO score isn’t at or above 620?
One important option is to contact the FHA directly at 1-800 CALL FHA to request a referral to an FHA-approved housing counselor who can help borrowers learn how to raise their credit score and make themselves a better credit risk in the eyes of a participating FHA lender. This counseling can be a very important step in the right direction toward owning a home.
There are many tactics and strategies a housing counselor can recommend depending on the borrower’s circumstances, but one important thing to remember about such advice; it takes time to raise credit scores and establish patterns of reliable payment. It’s best to approach this counseling with the knowledge that you can’t expect to be approved for a home loan right away if your FICO score is below the accepted limit for most lenders. Borrowers look for a record of at least one year of reliable payments and your credit scores need time to rise and correct if necessary.
But the time invested in fixing your credit score–with the help of an FHA approved housing counselor–is well time well spent. Learn more about getting help from the FHA.