620 FICO Versus 580 FICO In Mortgage Qualification On FHA Loans

This BLOG On 620 FICO Versus 580 FICO In Mortgage Qualification On FHA Loans Was UPDATED On November 16th, 2017

FHA Loans is the most popular mortgage loan program in the United States. For a home buyer to qualify for a 3.5% FHA insured mortgage loan, the minimum credit score required is 580.

Home Buyers can qualify for FHA Loans with the following:

  • Low Credit Scores
  • Low Down Payment
  • Outstanding Collections
  • Outstanding Charge Offs
  • Late Payments
  • 2 Years After Chapter 7 Bankruptcy discharged date
  • Home Buyers Can Qualify For FHA Loans One Year Into A Chapter 13 Bankruptcy Repayment Period
  • There Is No Waiting Period After A Chapter 13 Bankruptcy Discharged Date To Qualify For A FHA Mortgage
  • Outstanding Judgments And Tax Liens With A Written Payment Agreement And Three Months Of Payments To IRS And/Or Judgment Creditor
  • Three Years After The Recorded Date Of Foreclosure Or Deed In Lieu Of Foreclosure
  • Three Years After Short Sale Date

Qualifying For FHA Loans With Low Credit Scores

Home Buyers with under 580 Credit Scores can qualify for FHA Loans.

FHA insured mortgage loan requirements with 3.5% down payment requires that the mortgage loan borrower have at least a 500 FICO credit score.

  • However, home buyers with credit scores between 500 FICO and 579 FICO can qualify for FHA Loans with 10% down payment and as long as they get an approve/eligible per Automated Underwriting System
  • Any credit scores at 580 FICO and higher only require a 3.5% down payment
  • Even though home buyers only need a 580 FICO credit score to qualify for a FHA insured mortgage loan, there are huge advantages on having a 620 FICO versus 580 FICO credit scores when it comes to mortgage qualification process

Some Advantages Of Having 620 FICO Versus 580 FICO Credit Scores

There are many advantages of having a 620 FICO versus 580 FICO credit scores:

  • One of the biggest advantages of having a 620 FICO versus 580 FICO credit scores is the debt to income ratio caps on borrowers over 620 FICO Versus 580 FICO In Mortgage Qualification
  • For any mortgage loan borrower with a credit score of lower than 620 FICO, the maximum back end debt to income ratio allowed is 43% DTI for FHA insured mortgage loans
  • However, mortgage borrowers with credit scores over 620 FICO, the back end debt to income ratio requirement jumps to 56.9% to get an approve/eligible per AUS
  • Other advantages of having 620 FICO versus 580 FICO credit scores are lower mortgage rents, no verification of rent
  • Other benefits of having 620 FICO Versus 580 FICO In Mortgage Qualification is that mortgage interest rates are substantially lower

Quick Fixes To Get Credit Scores Up To 620 FICO Or Greater

Mortgage Borrowers who have credit scores below 620, there might be some quick fixes where they can boost their credit scores over 620:

  • Some of the quick fixes to boost credit scores over 620 FICO or higher might be just paying down credit card balances
  • For maximum credit score optimization, consumers should have their credit card balances below 10% balance of the total credit limit
  • Other quick fixes might be adding one or more secured credit cards with a minimum of a $500 credit limit
  • If a mortgage borrower is married and the spouse has credit cards, then try adding themselves on as authorized user to spouse’s credit cards
  • The spouse’s credit card needs to have a perfect payment history and very low credit card balance in order for this strategy to work
  • These strategies are sure quick fixes that can boost borrowers credit scores by 20 or more points and get over the 620 FICO credit score 

Why Do Some Lenders Require Higher Credit Scores?

There are two types of FHA Guidelines:

HUD, the parent of the Federal Housing Administration (FHA), requires a 580 credit score for home buyers to qualify for a 3.5% down payment FHA home purchase with a FHA Loan.

  • However, many mortgage lenders require higher credit scores such as 620 to 640 although FHA Guidelines On Credit Scores to qualify for a 3.5% down payment FHA Loan is 580
  • Lenders can require higher standards than those of HUD Guidelines, especially smaller lower capitalized mortgage lenders
  • This is called a FHA Lender Overlay and is totally legal
  • The Gustan Cho Team at USA Mortgage has no lender overlays on FHA, VA, USDA, and Conventional Loans

Home Buyers who needs a direct lender with no lender overlays on government and conventional loans can contact The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at gcho@usa-mortgage.com. We are licensed in multiple states and are available 7 days a week, evenings, weekends, and holidays.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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