Credit Requirements Needed To Get Approved For A Mortgage

Credit Requirements Needed To Get Approved For A Mortgage

Gustan Cho Associates are mortgage brokers licensed in 48 states

One of the most frequently asked by first-time homebuyers is what are the credit requirements needed to get approved for a mortgage. Every mortgage loan program has its own minimum credit requirements. We will cover the general credit requirements on FHA, VA, Conventional, Jumbo, and Non-QM loans. In general, mortgage companies rely heavily on credit scores in determining the risk factor of each individual mortgage loan applicant. The lower the credit score, the higher the risk for the lender. The lower the credit scores, the higher the mortgage rates lenders charge. Higher rates mean tens of thousands of dollars in mortgage interest expense for the borrower. It is best to maximize your credit scores when applying for a mortgage.

Which Mortgage Program Has The Lowest Credit Score With The Lowest Down Payment Requirements?

HUD, the parent of FHA, is the federal government agency that administers FHA loans. FHA loans are originated by HUD-approved private mortgage companies. The role of HUD is to insure lenders in the event borrowers default on FHA loans. FHA loans are the most popular mortgage loan program for homebuyers with low credit scores and low down payments on a home purchase. FHA loans are one of three government-backed mortgage loans. Due to the government guarantee, lenders can offer FHA loans to borrowers with credit scores down to 500 FICO and prior bad credit. To qualify for a 3.5% down payment FHA loan, borrowers need at least a 580 credit score. Borrowers with credit scores between 500 to 579 FICO need a 10% down payment per HUD guidelines.

HUD Credit Score Requirements To Get FHA Loan Approval 

Even though HUD guidelines allow borrowers with under 580 credit scores to qualify for FHA loans with a 10% down payment, they need to either get an approve/eligible per automated underwriting system (AUS) or meet manual underwriting guidelines. To get an automated approval via AUS, they generally need timely payments in the past 12 months. To be eligible for FHA manual underwriting guidelines, mortgage applicants need timely payments in the past 24 months. HUD understands people can go through periods of bad credit. However, in order to qualify for an FHA loan, borrowers need to have re-established themselves and have been timely on all monthly payments for at least 12 months.

FHA Loans With Credit Scores Down To 500 FICO

Homebuyers with credit scores under 580 FICO and down to 500 can qualify for FHA Loans:

  • But need 10% down payment versus 3.5% down payment for borrowers with under 580 credit scores
  • Just the credit scores are not the only FHA Credit Requirements to qualify for FHA Loans Florida
  • Borrowers credit profile will be fully reviewed by mortgage underwriters
  • The past 12 months payment history on a credit report will be thoroughly reviewed
  • Borrowers can have prior bad credit, outstanding collections, charge off accounts, prior bankruptcy, prior short sale, prior deed in lieu of foreclosure, and prior foreclosure and can still qualify for FHA Loans in Florida
  • However, lenders want borrowers to have been timely in the past 12 months on all of their debts

In this article, we will cover and discuss the minimum credit score guidelines to qualify for an FHA loan.

Other Credit Requirements Besides Meeting The Minimum Credit Scores

Most mortgage programs have minimum credit score requirements in order for the borrower to proceed with the mortgage process. However, just meeting the minimum credit score does not mean that borrowers met all the necessary credit requirements to qualify for a mortgage. There are other credit requirements besides meeting the minimum credit scores. One of those requirements that the majority of the mortgage lenders require is no delinquencies in the past 12 months. Borrowers need to meet the HUD Guidelines on DTI for FHA Loans and Fannie Mae and Freddie Mac DTI Guidelines for Conventional Loans. Many lenders have overlays on tradelines such as having at least three credit tradelines that have been paid timely for the past twelve months.

Credit Tradelines Are Overlays And Not Agency Guidelines

How about for those borrowers who do not have three credit tradelines? By tradelines, we mean three creditors such as credit cards, automobile loans, installment loans, and mortgage loans that report to the three major credit reporting agencies:

  • Transunion
  • Experian
  • Equifax

Credit Tradelines are not required by HUD or Fannie Mae/Freddie Mac:

  • But is a lender overlay by individual lenders

Borrowers who are asked for minimum credit tradelines by a lender can qualify with lenders with no overlays:

  • Gustan Cho Associates does not have any overlays on government and/or Conventional Loan Programs

Why Are Credit Requirements On Tradelines Different From Lender To Lender?

Credit tradelines are important for any lender because it shows the past payment history of a borrower. Borrowers do not need traditional credit tradelines to qualify for a mortgage. Non-Traditional Credit Tradelines can be a substitute for traditional credit tradelines.

Traditional credit tradelines are creditors who report the consumer payment history and record to all three credit bureaus:

  • Transunion
  • Experian
  • Equifax

Examples Of Credit Tradelines

Credit Tradelines

Here are examples of traditional credit tradelines:

  • Mortgage payments
  • Automobile payments
  • Student Loan payments
  • Installment debt
  • Revolving credit debt such as credit cards

Non-Traditional Credit Tradelines are creditors that do not report the borrower’s payment history on consumer credit reports.

NON-Traditional Versus Traditional Credit Tradelines

Examples of non-traditional credit tradelines are the following:

  • Rent payment
  • Cell phone payments
  • Utilities
  • Insurance payments
  • Any other creditors that do not report on consumer credit reports

To be able to use non-traditional credit tradelines, consumers need to provide 12 months of timely payment proof via canceled checks and/or bank statements. Undocumented cash payments do not count even though borrowers may have receipts.

Credit Requirements On Tradelines Overlays By Lenders

Borrowers who do not have active credit tradelines who shop for a mortgage with lenders that requires three credit tradelines as part of their underwriting credit requirements, do have a choice with shopping for lenders with no lender overlays. Traditional credit tradelines reporting on credit bureaus are not required to get an approve/eligible per automated underwriting system. There are lenders like myself where no credit tradelines are required. Credit Tradelines take at least a year of timely payments to the creditor for it to be valid. A consumer cannot just open up a secured credit card account and use it as a credit tradeline unless that card is seasoned for at least one year. There are many lenders that require credit tradelines to be seasoned for two or more years.

Homebuyers who are in a hurry to purchase a home but do not have three credit tradelines with a year of seasoning, contact us at 800-900-8569 text us for a faster response. Or email us at

Credit Requirements For Loan Approval Required By Lenders

Whether the plan is to purchase a home right away or in the near future, home buyers with no credit should plan on opening up three to five secured credit cards and start establishing and rebuilding their credit. Potential homebuyers who plan on buying a home or not, it is strongly recommended that they establish credit by getting three credit tradelines. Secured credit cards are the most powerful tool in rebuilding and re-establishing credit. Consumers should get three secured credit cards with at least a $500 credit limit for maximum effect. Any credit limit under the $500 limit will have little impact on raising credit scores.

How To Rebuild Credit To Qualify For A Mortgage 

For consumers with low credit due to no credit, getting 3 secured credit cards can boost credit scores by more than 100 points in a matter of a few months. Consumers who get secured credit cards should be able to qualify to get unsecured credit cards after 6 months to a year. Consumers purchasing a vehicle and having the cash to pay it should still finance it. Financing establishes credit tradelines on installment debt and will create a stronger credit profile. Make sure to make all monthly payments on time. This is because one 30-day late payment can plummet credit scores. Late payment history will remain on the credit report for seven years.

How Mortgage Lenders Compare Credit Scores Versus Late Payments

Mortgage loan applicants may meet the minimum credit score requirements on a particular mortgage loan program but may not get an approve/eligible per automated underwriting system (AUS) due to recent late payments in the past 12 months. There are other reasons mortgage applicants may meet the minimum credit score requirements on a loan program but may not qualify for a mortgage.

Here are the top reasons why borrowers with higher credit scores do not qualify for mortgages:

  • Late payments in the past 12 months
  • Late payments after bankruptcy and/or foreclosure
  • Credit disputes on non-medical collections and charge offs
  • Recent collection and late payments in the past 12 months
  • Late payments during Chapter 13 Bankruptcy repayment plan

Borrowers who were told they do not qualify due to not meeting credit requirements, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at Oftentimes, borrowers do not qualify with a particular lender due to that lender overlays. It is normally not because they do not meet HUD, VA, USDA, and/or Fannie/Freddie mortgage guidelines. As long as mortgage applicants can get an approve/eligible per Automated Underwriting System findings, we can get them approved and closed on government and/or conventional loans. We have no lender overlays on government and conventional loans. Gustan Cho Associates has dozens of lending partnerships with wholesale non-QM mortgage lenders. We offer no-doc loans, bank statement loans, asset-depletion mortgages, non-QM loans one day out of bankruptcy and/or foreclosure, and dozens of other specialty mortgage loan programs. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

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