FHA loan credit requirements state that the lender must pull your credit information and credit scores to review a borrower’s credit worthiness. But if you are applying for an FHA loan you likely have three credit scores the lender must contend with.
Borrowers often want to know how the lender views these three scores-they can be different from one another depending on circumstances-and which of multiple credit scores is actually used to process your home loan.
The rules for FHA credit score requirements are found in HUD 4000.1, the FHA loan handbook. Credit scores must come directly from the three credit reporting agencies and cannot be submitted or transmitted to the borrower or another third party then submitted to the lender. Your credit scores must come from the source.
FHA loan rules refer to your FICO score as a “minimum decision credit score” or MDCS. HUD 4000.1 says of the MDCS:
“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.”
When there is more than one borrower to be obligated on the mortgage, your participating FHA lender will pull credit scores for all borrowers. “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.”
And HUD 4000.1 even anticipates transactions where an FHA home loan or refinance loan has at least one borrower who does not have a traditional credit score. HUD 4000.1 rules in this area state, “Where the Mortgage involves multiple Borrowers and one or more of the Borrowers do not have a credit score (non-traditional or insufficient credit), the Mortgagee must select the lowest MDCS of the Borrower(s) with credit score(s).”
The bare minimum credit score needed to qualify for any FHA home loan is 500 or higher. A 500 FICO score does NOT permit the borrower to get maximum financing. FHA loan rules say that for FICO scores between 500 and 579, a larger down payment of 10% of the adjusted value of the home is required.
The FHA credit score minimums may not reflect lender standards-your participating lender may have higher FICO score requirements than the minimums listed in the FHA loan rules-you will need to discuss credit requirements with the lender, as well as FHA loan minimums.