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FHA Minimum Standards Vs. Lender Standards

August 8, 2023


A frequently asked question about FHA home loan credit score requirements goes like this:

“I recently applied for a mortgage loan, and my FICO scores are above 580, which FHA loan rules say is the score you need for the lowest down payment. But my lender wants a higher score for the lowest down payment. What’s going on? Who is right?”

The most important thing to remember about the FICO score issue is that FHA minimum standards don’t always match the lender’s requirements.

The lender is permitted a higher requirement as long as those requirements are deemed “reasonable and customary” for similar mortgages.

FHA minimum standards are just that–minimums. A lender is free to require a higher credit score or look for better debt-to-income ratios, etc., as required by the standards of that financial institution.

The FHA cannot force a participating lender to issue credit when the applicant doesn’t meet that lender’s minimum requirements.

That’s not a judgment of this reader’s ability to qualify for an FHA loan or an observation on this specific person’s creditworthiness–it’s just a general observation.

And it isn’t just FICO scores that can influence a lender to require a higher down payment or other compensating factors.

Frequent job changes or other complicating factors might prompt a lender to require a higher down payment or credit score.

And then there are the mechanics of the loan itself that could add more costs up front.

For example? In some cases, a borrower who wants to buy a home appraised lower than the asking price may be required to pay the difference up front.

You can proceed with the loan, but you cannot finance the difference.

In other cases, a borrower with a credit score that doesn’t meet the lender’s requirements for getting the best mortgage rates may get a higher interest rate than he or she otherwise would.

Standards are different from lender to lender.

A minimum credit score may not qualify for the best rates and terms. Any borrower who wants help with these types of pre-purchase issues should contact the FHA for a referral to an FHA-approved housing counselor who might be able to give sound advice on increasing chances for loan approval.

For a housing counselor referral, contact the FHA directly at 1-800 CALL FHA.

Joe Wallace - Staff Writer

By Joe Wallace

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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