Gustan Cho The Mortgage Expert,
Publish On: August 23, 2021
This Article Is About Credit Scores Required For FHA And VA Loans By Homebuyers
Many borrowers are confused about the Credit Scores Required For FHA And VA Loans. There are told conflicting Credit Scores Required For FHA And VA Loans by lenders when they are trying to get qualified for a mortgage. Over 75% of our borrowers at Gustan Cho Associates are those who could not qualify for a mortgage due to lender overlays. Gustan Cho Associates has no lender overlays on government and conventional loans.
Many of our borrowers met the minimum FHA and/or VA Agency Mortgage Guidelines but went to lenders who had higher lending requirements All lenders need to have their borrowers meet the minimum agency guidelines. However, lenders can have higher lending standards of their own called lender overlays. For example, to qualify for a 3.5% down payment FHA loan, the borrower needs a minimum credit score of 580. Many lenders require 620 to 640 credit scores on FHA loans even though the minimum credit score requirement is 580 for a 3.5% down payment home purchase FHA loan. This is because most lenders have lender overlays on FHA, VA, USDA, and conventional loans.
Agency Mortgage Guidelines Versus Lender Overlays
Not too many lenders will do FHA loans with a 580 credit score:
- Most lenders require a 640 or higher credit score on FHA loans
- Why is it lenders require a 640 to 680 credit score for a 3.5% down payment home purchase FHA loan when FHA guidelines state all that is needed is a 580 credit score?
- This is because lenders are allowed to have higher lending guidelines called lender overlays
- Overlays are lending guidelines that are above and beyond the minimum agency mortgage guidelines
- Therefore, not all lenders have the same mortgage guidelines
- The great news is Gustan Cho Associates is a national lender with no lender overlays on government and conventional loans
In this article, we will discuss and cover Credit Scores Required For FHA And VA Loans By Homebuyers.
More About Credit Scores
Credit Scores are one of the most important factors considered by lenders when qualifying mortgage borrowers. A high credit score means financial responsibility. The higher the credit scores, the lower the mortgage rates. The previous payment history of the borrower suggests future payment forecasts. Lenders want borrowers who have the ability to repay their new housing payments. Credit scores range from a low of 300 to a high of 850. It is categorized into five ranges.
Here are the categories credit scores are grouped:
- Very Poor: 300 – 579
- Fair: 580 – 669
- Good: 670 – 739
- Very Good: 740 – 799
- Exceptional: 800 – 850
Credit scores fluctuate on a monthly basis.
Agency Credit Scores Required For FHA And VA Loans
All loan programs. with the exception of VA loans have minimum agency credit score requirements. The minimum agency credit score requirement on FHA loans for a 3.5% down payment home purchase FHA loan is 580 FICO. Borrowers with under 580 FICO down to 500 credit scores can qualify for FHA loans with a 10% down payment. Mortgage companies can impose their own credit score requirement that is higher called lender overlays. Lender overlays are lending requirements that are imposed by the lender that is above and beyond the minimum agency mortgage guidelines.
Minimum Credit Scores On VA Loans
The VA does not have a minimum credit score requirement:
- As the U.S. Department of Veterans Affairs explains, there are no minimum credit score requirements on VA loans
- It is up to the lender to require a minimum credit score requirement
- Only borrowers who have served in a branch of the U.S. military with a valid certificate of eligibility are eligible to qualify for VA loans
- To find your eligibility, you can apply at ebenefits.va.gov or call 877-827-3702 for more information
The great news is Gustan Cho Associates has no lender overlays on government and conventional loans.
Understanding Lender Overlays Imposed By Lenders
Not all lenders have the same credit score requirements on FHA and VA loans. If you are told you do not qualify for a mortgage by a lender, go to a different lender with no lender overlays. It is highly recommended that you research the basic agency mortgage guidelines. Lenders overlays are mortgage guidelines that are above and beyond the minimum agency guidelines. Mortgage companies can have lender overlays on just about anything.
Most lenders do have lender overlays on credit scores. This is why lenders have different credit score requirements on FHA and VA loans. Although FHA requires a 580 FICO to qualify for an FHA loan with a 3.5% down payment, many lenders will require a 640 to 680 credit score requirement. HUD allows borrowers with under 580 credit scores and down to 500 FICO to qualify for FHA loans with a 10% down payment. Most lenders will not approve any borrowers with under 580 credit scores as part of their lender overlays. This also holds true on VA loans.
The VA does not have any minimum credit score requirements. Most lenders require a minimum credit score of 640 to 680 FICO on VA loans. The great news is Gustan Cho Associates Mortgage Group does not have any lender overlays on government and conventional loans.
