What do you need to know about FHA loan approval and your credit scores? There are some important factors that can help you in the planning stages for your new mortgage loan. Don’t go into the mortgage application process without being armed with this information-you’ll be glad you know before you sign.
FHA Minimum FICO Scores And Your FHA Lender
FHA minimum FICO score requirements are not necessarily the same as your lender’s requirements. FHA Loan rules establish a minimum for credit scores (580 or higher for maximum financing) but your lender may require higher scores.
An average is between 640 and 700, with scores between 640 and 680 being common requirements for the lowest down payment.
FICO Score Requirements May Vary Depending On The Type Of FHA Loan
Your lender may have a higher FICO score requirement for certain kinds of mortgage loans such as the FHA One-Time Close construction loan. In such cases, the lender’s rules may be due to the higher risk of the loan (such as with construction mortgages) or the elevated costs associated with the transaction.
Some Borrowers Make A Planning Mistake With FICO Scores
It’s easy to assume that FICO scores won’t change over time, and that your score will be the same when you get to the part of the home buying process where you fill out the mortgage application. But if you check your credit scores and then miss payments, pay late, or apply for new credit, your scores may change.
It’s never advisable to apply for more than one line of credit at once because each “hard inquiry” affects your credit score for a time. When you commit to an FHA mortgage loan, also commit to not opening any new credit accounts in the meantime for best results.
It’s also a mistake to assume that FICO scores are the ONLY determining factor for FHA loan approval. This is not true since the lender must also calculate your debt ratios and review your employment history. Your FICO scores are only one part of the equation.
If Your Credit Scores Are Low, You Can Work On Them Before Applying For A New Loan
Changing your credit scores takes time and you cannot be in a hurry-it’s advisable to come to the FHA loan process with 12 months of on-time payments at a minimum.
This record of on-time payments can definitely help improve your credit, but however long it takes you to reach that 12 month goal is how long you should set aside to do so-the approval of your new home loan will depend on it.
You can also call the FHA directly at their toll-free number (1-800 CALL FHA) to request a referral to a local, HUD-approved housing counselor who can give you advice on how to better prepare for the home loan you wish to apply for.