In our previous blog post, we examined some common FHA loan FICO score questions and answers. Here are some more things you should know about FHA home loans, the FICO score requirements for them, and more.
Is There A FICO Score Too Low To Be Approved For An FHA Loan?
Lender standards will apply above and beyond FHA loan rules in this area. Technically speaking an FHA loan applicant with a FICO score of 500 or less is not eligible for an FHA-insured mortgage loan.
Lender standards may be higher than this, however, and borrowers with FICO scores in the 500 range should seriously consider calling the FHA directly at their toll-free number 1-800 CALL FHA to get a referral to a local, HUD-approved housing counselor who can assist with pre-application planning, saving, credit issues, and more.
I Have Excellent FICO Scores Now, But I Have A Bankruptcy Or Foreclosure In My Credit History. Can I Still Get An FHA Loan?
FICO scores alone cannot determine loan approval; borrowers will need to observe any required “seasoning period” or waiting times before applying to get a new mortgage.
Depending on the nature of the financial difficulty, a borrower may be required to wait between one year and three years (or more depending on the lender and other factors) from the time of bankruptcy discharge or foreclosure proceedings have finished before an FHA home loan may be considered.
Note that the clock begins once bankruptucy has been discharged, not when it was filed. The foreclosure waiting period depends on when the property is officially taken out of the borrower’s name in a legal sense. You should plan to discuss these issues with a loan officer to see what is possible at that financial institution since standards will vary.
If I Have Multiple FICO Scores, Which One Applies?
FHA loan rules in HUD 4000.1 state that your FICO score, (when only one is present) is sufficient. When there are two FICO scores (not required) the lender will use the lower score. When three are present the lender will use the middle FICO score for loan approval. This is true for all borrowers to be obligated on the FHA home loan.
How Does The Lender Determine FICO Scores For FHA Loans With More Than One Borrower?
HUD 4000.1 tells the lender, “Where the Mortgage involves multiple Borrowers, the Mortgagee must determine the Minimum Decision Credit Score (MDCS) for each Borrower, and then select the lowest MDCS for all Borrowers.”
In cases where an FHA mortgage has 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)”.