April 6, 2020
Did the FHA and HUD increase the minimum FICO score standards for Single-Family home loans, refinance loans, and reverse mortgages? At the time of this writing, the coronavirus pandemic is still affecting most industries across America including the real estate and mortgage loan sectors.
You may read news stories about higher credit requirements making it tougher to qualify for a mortgage in the era of coronavirus; these stories may be accurate in their reporting of higher FICO score requirements at the time of this writing, but who is responsible for those requirements?
The lowest FICO score technically possible according to the FHA to qualify for a loan (one with more expensive terms) is 500.
That is the lowest FICO score possible to still qualify for a mortgage, on paper. Your experience will vary greatly depending on the housing market, the lender, and other variables. In general, carrying scores below 600 make it harder to qualify for a home loan. It’s best to work on your credit ahead of time (at least a year in advance of your loan) to improve your FICO scores before applying for new credit.
The FHA says borrowers who have FICO scores between 500 and 579 could qualify for an FHA mortgage with a 10% down payment. It’s up to the lender to decide whether a borrower with a 500 credit score is worth the financial risk of extending credit to.
Borrowers with FICO scores at 580 or higher may technically qualify for an FHA mortgage with the lowest down payment possible (3.5%). But it is left to the lender to decide what FICO scores in this range are worth extending the most competitive interest rates and other terms to. Your experience may vary depending on the lender.
The FHA minimum requirements are such that the lender may add higher standards to (not lower ones) at their discretion, within reason. FHA requirements in HUD 4000.1 state the rates and terms offered to the borrower must be “reasonable and customary” for that type of loan in that housing market.
The headlines about higher FICO scores could be true, but the responsible party for those higher requirements is not the FHA.
At the time of this writing, there are no FHA Mortgagee Letters or alterations to the online version of the FHA Single-Family Handbook that reflect a policy change for FHA mortgages with regard to FICO score minimums.
If it is harder to qualify for a single-family home loan at your FICO score range right now, that is because of the choices your participating lender has made and not policy changes at the FHA.
That could change depending on government policy decisions later down the line, but at press time FHA has not altered its FICO score requirements.
That’s one reason why it’s key to protect your credit scores as much as possible during the economic impact of coronavirus and COVID-19. Your access to credit going forward will depend much more heavily on your FICO scores, loan repayment habits, credit utilization, etc. If you are currently looking for a participating FHA lender, consider shopping around more aggressively to find a financial institution willing to work with your scores and circumstances.
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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