Some potential FHA borrowers have questions about FHA loan credit score requirements. It’s easy to hear part of story when it comes to other people qualifying for an FHA mortgage and assume you’ve gotten all the facts, but the reality is that FHA loan rules and credit score requirements aren’t the whole picture. Lender standards also have a say in loan approval.
That is why FHA loan rules, which specify a FICO score starting at 580 (for maximum financing), don’t have the final say. Lender standards also apply, and those standards (provided they are applied in accordance with federal law) will also factor into the application process.
An FHA loan fact: FICO scores below 500 are not permitted. An FHA loan fiction: Anyone with a FICO score in the mid 500s can get approved for an FHA mortgage loan. This is not true because lender standards vary from place to place. One lender may be willing to work with a borrower with marginal credit, while another may not.
An FHA loan fiction: All borrowers with FICO scores at 580 or higher will be approved for an FHA mortgage. This is not true because FICO scores are not the only criteria for an FHA loan to be approved.
A borrower with too much debt, missed payments in the last 12 months, or one with a recent foreclosure may not be eligible for the loan at the time of application. FHA loans are reviewed on a case-by-case basis, especially where foreclosure, bankruptcy, missed payments or other variables may factor in.
An FHA loan fact: If you have missed any payments in the 12 months leading up to the loan application, it is possible your loan application may be in jeopardy. You will need to speak to your loan officer about the nature of the missed payment, whether it is likely to happen again, and whether there are compensating factors involved that could affect loan approval.
When the FHA publishes its FICO score standards, you will also need to cross-reference those standards with those of your chosen lender. Even if your FICO score is within FHA loan standards, the other factors that can affect your loan application including debt to income ratios, your work history, the nature of your employment and other factors will also be taken into account. Higher FICO scores give the lender more incentive to offer more competitive terms on the loan. Lower FICO scores can affect your ability to get the most advantageous interest rate for the new mortgage loan.
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