October 21, 2013
We have gotten a large number of reader questions lately about FHA FICO score requirements and other credit-related home loan issues. Here is a sampling of our most recent questions:
“I have faced many credit issues, including filing Chapter 7 Bankruptcy, late payments, etc. I am about to now pay off all my outstanding debts to clear my credit report and only have my monthly bills…My credit score is in the mid 500′s. Would I be able to qualify for a FHA home loan based on these scenarios? What would be the best steps for me to qualify for a home loan in the next year?”
and:
“We are looking to purchase or first home. We are 3 years discharged from chapter 13 bankruptcy. We have established a car loan and some small credit cards. Our credit score (depending which one) averages from 590-632. Between both of use. Should we pursue a loan at this time or should we wait?”
There are many lenders who will require the lowest FICO score to be 620 or better in order to approve an FHA loan application. Borrowers may find some lenders willing to work with lower credit scores depending on individual circumstances, but in general it may be safe to assume that a 620 minimum is fairly typical. Any borrower who worries about his or her ability to qualify for an FHA home loan because of FICO scores should do two things.
The first is to contact the FHA directly by calling 1-800 CALL FHA, and request a referral to a local, FHA-approved housing counselor who can assist FHA loan applicants with pre-purchase housing counseling. This is a very important step since borrowers who are on the margins of FHA loan approval due to low credit scores should come to the application process armed with as much information as possible.
The second is to give plenty of time to prepare for a new home loan. Finance experts recommend taking at least a year to prepare for any home loan, so borrowers should give themselves at least that much time to work on credit issues and other factors as recommended by the FHA referred housing counselor.
Remember, even though the FHA minimum FICO score requirement is 500 or above, that does not mean a lender is required to give credit to borrowers with FICO scores below the standards set for that financial institution. 620 is a very good starting point compared to lower scores, but you may find that lenders may offer better terms to borrowers with FICO scores higher than that. It’s important to come to an FHA loan with the best credit scores and repayment history you can–at least 12 months with no late or missed payments.
Do you have questions about FHA home loans? Ask us in the comments section.
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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