February 21, 2018
When it comes to FHA mortgage loans, or any major line of credit, your credit history counts. Some might focus on the FICO score, but the numbers you get off your credit report are not the only credit qualifications needed to successfully apply for an FHA mortgage.
Credit Report Data: The Big Three
Many people use the phrase “Big Three” to refer to the three credit reporting agencies themselves; Equifax, Experian, and TransUnion. But here, we’re referring to the Big Three on your credit report itself. Your credit score, credit history, and the amount of credit you carry.
The Big Three credit factors all count towards your potential loan approval or denial. Why? The lender is required to establish that you are a good credit risk for the loan. Your FICO score is only a part of the picture.
FICO Scores For Your FHA Loan
FHA loan minimums found in the FHA loan handbook include a baseline requirement for “maximum financing”. That baseline? a 580 FICO score.
However, your lender may require a higher FICO score. And the rules of the FHA loan program state that the lender may do so as long as the required FICO scores are applied in accordance with federal law (including Fair Housing Act rules).
FICO score requirements may be flexible depending on a variety of factors including how much the the borrower is paying up front as a down payment.
FHA Loan Credit History Rules
In general, the lender wants to see that you have been a reliable payer on all financial obligations in the year or so leading up to the loan. “Year or so” specifically meaning 12 months or MORE (never less) leading up to your application.
Coming to the application process with anything LESS than 12 months of on-time payments risks loan denial. You should always pull your credit report and examine your financial records ahead of time to insure you come to the home loan application with at least 12 months of on-time payments.
A singe late or missed payment on your record may or may not be an issue for your chosen lender. Much depends on your credit history, the circumstances behind any late or missed payments, and whether it seems likely to the lender that such missed payments might be a problem later on (based on your credit history and other factors).
FHA Loan Credit Concerns
Questions your lender is likely to be asking when reviewing your credit reports and other data include how much potential debt you currently have. How many credit cards do you have? How high are the balances? Do you have potential to increase your debt ratio over time and reduce your ability to pay for the mortgage each month?
Such issues are important to consider before you fill out your application. You can always call the FHA to request a referral to a local, HUD-approved housing counselor who can help you determine where you are at in terms of creditworthiness and preparedness for a new loan application. Contact them directly at their toll-free number, 1-800 CALL FHA.
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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