April 22, 2013
A reader asks, “We have been working for the last year to clean up our credit with the help of a credit repair company. We have made strides. We have been living in our home the last three years which we are purchasing on a land contract.”
“It is now the end of the contract and we need to do the financing. I’m reading that the minimum credit FHA requires is 580, but I cannot find any place that will finance a person with less then a 640 credit score. Secondly, it is my understanding that we should be doing a refinance anyhow, but the places I have called are clueless. HELP! Our high score is right at 580 and we need to finish this financing NOW.”
This is an issue that many borrowers learn about the hard way–FHA loan rules do have a minimum credit score that is below 600, but the FHA cannot force a lender to approve home loans for borrowers with credit scores lower than the lender’s minimum FICO score requirements.
What this means is that while some borrowers may technically qualify for an FHA home loan based on FHA loan requirements, the lender’s FICO score requirements also apply and play an important part in loan approval. For this reason, borrowers with credit scores that are right at the FHA minimums or close to them should call the FHA to ask for a referral to an FHA-approved housing counselor.
A housing counselor can offer advice and information about credit, improving credit scores, and strategies to get ready for an FHA home loan. These FHA-approved housing counselors do not offer to “repair your credit”–they offer advice to borrowers so the applicant can take steps to become more creditworthy. It’s very important to use caution with any third party company that offers to “repair credit” for a fee.
Many times these companies won’t be able to offer you anything you cannot do for yourself. Improving credit scores takes time and patience. The help of a government-approved housing counselor may be invaluable for any FHA loan applicant who needs to improve their chances for an FHA mortgage loan. To get a referral to an FHA approved housing counselor in your area, contact the FHA at 1-800-CALL FHA.
Do you have questions about FHA home loans or refinance loans? Ask us in the comments section.