August 13, 2020

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Bad Credit Scores And FHA Home Loans

Bad Credit Scores And FHA Home Loans

Bad credit scores and FHA home loans-do you know what the rules are for FHA credit requirements? FHA loan minimums and FHA lender standards may not be exactly the same, so it’s important to remember that the issues we discuss here are based around FHA minimum guidelines and that you’ll need to talk to a participating lender to see what other requirements must be met.

Is There A Bad Credit FHA Home Loan?

FHA loan rules require a 500 FICO score at the absolute minimum in order to qualify. Those who apply for an FHA loan with credit scores between 500 and 579 are required to make a higher down payment (10% of the adjusted value of the home) than those who apply with FICO scores 580 or higher.

Remember, these numbers are the FHA loan minimum standards, not necessarily those of your participating lender.

The short answer is that “bad credit FHA loans” don’t really exist, at least not in the wording of the FHA loan rules. Your loan officer needs to establish that you are an acceptable credit risk, that you have a MINIMUM of 12 months of on-time payments on all financial obligations leading up to the loan application, and that your income is stable and likely to continue.

A borrower needs to work on his/her credit issues in advance of applying for an FHA mortgage. If you have bad credit, or have a history of credit issues, it is a very good idea to contact the FHA directly at their toll-free number (1-800 CALL FHA) to request a referral to a local, HUD-approved housing counselor.

The housing counselor can talk to you about ways to get better prepared for an FHA loan application and work on strategies for that preparation.

Can Borrowers With Bad Credit Team Up With Co-Signers Or Co-Borrowers With Good Credit?

This question is basically asked to see whether two borrowers can “even out” one another in the credit requirements part of an FHA mortgage loan.

The FHA loan handbook, HUD 4000.1, instructs the lender to get FICO scores and credit history information from all those to be obligated on an FHA mortgage. The credit score issue involves something known as the “minimum decision credit score” or MDCS for short, which is defined as follows:

“The Minimum Decision Credit Score (MDCS) refers to the credit score reported on the Borrower’s credit report when all reported scores are the same. Where three differing scores are reported, the middle score is the MDCS. Where two differing scores are reported, the MDCS is the lowest score. Where only one score is reported, that score is the MDCS.”

The lender is required to do this for all those obligated on the FHA mortgage.

“An MDCS is determined for each Borrower. Where the Mortgage involves multiple Borrowers, the Mortgagee must determine the MDCS for each Borrower, and then select the lowest MDCS for all Borrowers.”

All borrowers must meet FHA loan program minimums and lender standards. You will need to have a discussion with your loan officer about how the varying credit scores for each applicant may affect the ability of the lender to approve your mortgage or refinance loan.

Joe Wallace - Staff Writer

By Joe Wallace

January 10, 2018

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 for (8) years and is currently the Associate Editor for

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About was launched in 2010 by seasoned mortgage professionals wanting to educate homebuyers about the guidelines for FHA insured mortgage loans. Popular FHA topics include credit requirements, FHA loan limits, mortgage insurance premiums, closing costs and many more. The authors have written thousands of blogs specific to FHA mortgages and the site has substantially increased readership over the years and has become known for its “FHA News and Views”.

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