What Are The 2017 FHA Credit Score Guidelines
This BLOG On 2017 FHA Credit Score Guidelines Was Written By Gustan Cho
There are minimum credit score requirements to qualify for FHA Loans. 2017 FHA Credit Score Guidelines state that in order for a borrower to qualify for a FHA Loan that requires a 3.5% down payment, the borrower must have a 580 FICO Credit Score. FHA is part of the United States Department of Housing and Urban Development or HUD and it is a federal organization that insures FHA Loans to banks and private mortgage lenders who are approved FHA Lenders. FHA does not originate mortgage loans. FHA will insure a bank or mortgage lender who has originated and funded a FHA Loan against borrower default. Here is how FHA works:
- FHA approved mortgage lender will qualify a borrower
- Borrower need to meet FHA Guidelines such as minimum credit score requirements, debt to income ratio requirements, waiting period after bankruptcy and foreclosure, etc.
- Lender does not have to just adhere to the minimum FHA Lending Guidelines but can have additional tougher FHA Requirements: These additional lender requirements are called FHA Lender Overlays that in NOT imposed by FHA but by the individual bank and/or FHA mortgage lender.
- FHA will insure the lender if the borrower defaults on his or her FHA insured mortgage loan.
- Reason mortgage lenders have lender overlays is because whenever a FHA Loan defaults, it goes against the mortgage lender and if too many FHA Loans default, the FHA mortgage lender can be cut off from doing FHA Loans. Although FHA guarantees defaulted FHA Loans, they do not like the fact that they default and will count it against the lender that has FHA Loans that default which could ultimately cut them off.
Qualifying For FHA Loan With Credit Scores Under 620 FICO
Although FHA allows borrowers with credit scores under 620 FICO to qualify for a FHA Loan, most mortgage lenders will not take any borrowers unless their credit scores are at least 620 FICO or higher. Many FHA Lenders will not take on any lenders that do not have at least a 640 FICO credit score. Again, if you have credit scores of under 640 FICO, make sure that the lender that you consult with does not have any mortgage lender overlays that may hurt your chances of getting qualified. Again, just because you meet all FHA Lending Guidelines and can definitely qualify for a FHA Loan, that may not be the case with the particular mortgage lender that you are consulting with. The break point with big changes in FHA Guidelines is the 620 FICO Credit Score Mark. 2017 FHA Credit Score Guidelines does have impact with borrowers who have credit scores under 620 FICO.
2017 FHA Credit Score Guidelines With Credit Scores Under 620 FICO
Here are the differences in qualification requirements with 2017 FHA Credit Score Guidelines on borrowers with credit scores under 620 FICO:
- Debt To Income Ratio Requirements for borrowers with under 620 FICO credit scores is capped at 43% Debt To Income Ratios.
- Debt To Income Ratio Requirements for borrowers with over 620 FICO credit scores is capped at 46.9% DTI front end and 56.9% DTI back end.
- Outstanding collections and charge offs do not have to be paid.
- Credit disputes are allowed on medical collection accounts and non medical collection accounts with zero balance
- Credit disputes are not allowed on charge off accounts and any non medical collection accounts with over $1,000 in total aggregate collection account balance.
Many FHA Mortgage Lenders will require the following additional requirements where it is not mandated by FHA but by the individual mortgage lender. The requirements below are common requirements that many lenders require with borrowers who have credit scores of under 620 FICO and this is called lender overlays:
- Minimum of three credit tradelines that has been seasoned 12 to 24 months.
- Requirement of verification of rent. Verification of rent is providing 12 months canceled checks of the borrower’s rent payments. However, many folks who are living with family rent free cannot provide verification of rent so they would not qualify with this particular lender and need to consult with another lender that does not have verification of rent overlays.
- Reserves. Many mortgage lenders will have lender overlays for borrower with under 620 FICO credit scores where they cannot get any gift funds for down payment plus have three months of reserves. This may not be a FHA Requirement on the Automated Approval but a lender overlay with a particular lender.
- Front End Debt DTI: Some lenders may require a front end 31% Debt to Income Ratio Overlay. The front end debt to income ratio is the total housing payment (P.I.T.I.) divided by the borrower’s monthly gross income.
Home buyers who do meet the minimum FHA Guidelines but are told they do not qualify for a FHA Loan because of the particular mortgage lender overlays, please contact Gustan Cho at 262-716-8151 or email Gustan Cho at email@example.com. We will be able to help you in referring you to a loan officer that specializes on a FHA Loan Program that is best suited to you.