June 9, 2017
Do you know what your credit score is? Do you know what lenders require in terms of an FHA loan credit score? The answer might surprise you.
The short answer is that there’s a minimum FHA loan credit score requirement to qualify for the program, but lender FICO score requirements will also apply. FHA loan rules in the FHA Single Family Loan Handbook (HUD 4000.1) state that FICO scores of 580 or higher are required for “maximum financing”, which is the cost of the loan minus the borrower’s required 3.5% down payment.
Borrowers with FICO scores lower than 580, but not lower than 500 still may qualify for the FHA loan program but with a higher down payment (ten percent). Remember, these are the FHA minimum standards, NOT individual lender standards.
In general, borrowers may find lenders willing to offer loans to borrowers with FICO scores in the 600 range or better. You may find a participating FHA lender willing to work with a lower FICO score that still meets FHA loan limits, but in such cases it’s important to remember that you’ll likely need to address credit issues with the lender and make sure that you’re able to qualify by using good credit habits in the meantime.
For those who aren’t sure whether their FICO scores are good enough, it is always a good idea to consider calling the FHA/HUD directly for a referral to a local, HUD-approved housing counselor who can assist you with pre-purchase advice. This advice should come at the earliest possible planning stages of your new FHA home loan for best results.
Minimum FHA loan credit score requirements aren’t the only thing that will count towards loan approval. Your record of payments in the last 12 months leading up to the application, your employment history and your debt-to-income ratio are also important factors in the home loan approval process.
Your lender wants to approve your loan-help the lender help you by avoiding new credit applications, carrying credit card balances at a lower amount, and paying all financial obligations on time in the 12 months leading up to your mortgage loan application. These are all habits that can help improve your credit rating, make you a better risk for the lender, and help you prepare for your new budget that will include your mortgage payment.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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