Do All Lenders Have The Same FHA Credit Score Requirements

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This ARTICLE On Do All Lenders Have The Same FHA Credit Score Requirements Was PUBLISHED On June 18th, 2020

The team at Gustan Cho Associates get countless calls from our viewers on the topic of Do All Lenders HaveThe Same FHA Credit Score Requirements:

  • The answer is NO
  • Not all lenders have the same credit score requirements on FHA mortgages
  • HUD is the parent of FHA
  • FHA is a federal agency under HUD whose role is to insure and partially guarantee lenders who have their borrowers default and foreclose on their FHA loans
  • FHA is not a lender
  • It is a government mortgage insurance agency

FHA insures and partially guarantees FHA loans originated and funded by HUD-approved lenders.

Role Of FHA

All borrowers need to meet the minimum HUD Agency Mortgage Guidelines.

  • However, lenders can have higher expectations of their borrowers and require higher lending standards called lender overlays
  • Under HUD Agency Guidelines, borrowers can qualify for a 3.5% down payment FHA home purchase loan with a 580 FICO
  • However, lenders can require a higher credit score requirement such as a 620, 640, 660, or 680 FICO
  • This is perfectly legal and is called lender overlays
  • Lenders can have lender overlays on just about anything
  • Borrowers can qualify for an FHA loan with under 580 credit scores down to 500 FICO
  • However, per HUD Agency Guidelines, any borrower with under 580 credit scores need a 10% versus 3.5% down payment

In this article, we will discuss and cover Do All Lenders Have The Same FHA Credit Score Requirements.

HUD Agency Guidelines Versus Lender Overlays

The Housing and Urban Development (HUD) is the parent of the Federal Housing Administration (FHA).

  • HUD sets the minimum agency mortgage guidelines on FHA loans
  • All lenders need to meet the minimum agency lending guidelines for their borrowers who want an FHA loan
  • However, lenders are allowed to have higher lending requirements above and beyond those of the minimum HUD lending guidelines
  • The additional lending requirements imposed by lenders are called lender overlays
  • Lenders can have overlays on just about anything
  • For example, to be eligible to qualify for a 3.5% down payment FHA loan, the borrower needs a 580 credit score
  • However, most lenders will not touch a borrower with under 620 credit scores on FHA loans
  • Others may have higher credit score requirements such as 640, 660, or 680 FICO as part of their lender overlays
  • This is why not all lenders have the same lending requirements on FHA loans
  • The great news is Gustan Cho Associates has no lender overlays on FHA loans or other government and conventional loans
  • There are other lender overlays on FHA loans lenders often impose

In the next paragraph, we will talk about typical common lender overlays by lenders on FHA loans.

Do All Lenders Have The Same FHA Credit Score Requirements: Common Lender Overlays

Lenders can have lender overlays on just about anything. One lender may have an overlay on one item while another lender does not. Remember that not all lenders have the same lending requirements on FHA loans. As long as you meet the minimum agency HUD Lending Guidelines, you will qualify for an FHA loan. You may not qualify with all lenders but you will qualify with a lender like Gustan Cho Associates where there are zero overlays on FHA loans.

Here are the common lender overlays imposed by lenders on FHA loans:

  • Most lenders have lender overlays on credit scores
  • The maximum debt to income ratio required on FHA loans to get an approve/eligible per automated underwriting system is 46.9% front-end and 56.9% back-end
  • However, most lenders have lender overlays on debt to income ratios where they may cap it to 43% to 50%
  • Borrowers do not have to pay outstanding collections and charged-off accounts to qualify for an FHA loan
  • However, many lenders will require all outstanding collections and charged-off accounts need to be paid
  • Many lenders will not do manual underwriting
  • Manual underwriting is allowed on FHA and VA loans
  • Many lenders may impose lender overlays on gift funds where borrowers with under 640 credit scores cannot get gift funds
  • Under HUD Guidelines, homebuyers with under 580 FICO and down to 500 credit scores are eligible to qualify for an FHA loan with 10% down payment
  • However, most lenders will not take on any borrowers with under 580 credit scores

If you are told that you do not qualify for an FHA loan by a particular lender, go to a different lender with no overlays. Not all lenders have the same FHA lending requirements. As long as you meet the minimum HUD Agency Guidelines, you will qualify for an FHA loan with a lender with no lender overlays like Gustan Cho Associates.

Do All Lenders Have The Same FHA Credit Score Requirements: Minimum FHA Agency Mortgage Guidelines

If you meet the following minimum agency HUD Guidelines on FHA loans, you will qualify for an FHA loan. Please study the minimum mortgage guidelines when shopping for an FHA loan. Most lenders who tell borrowers they do not qualify for an FHA loan do not tell them they can qualify with another lender. They often tell borrowers they do not meet FHA Standards so they do not qualify. Remember that just because you do not qualify for an FHA loan with Lender A does not mean you do not qualify with Lender B. GCA Mortgage Group is one of the very few lenders with no overlays on FHA, VA, USDA, and Conventional loans.

If you meet the following basic FHA Guidelines, you will get an FHA loan approved with a lender with no lender overlays:

  • Have a minimum 580 credit score for a 3.5% down payment FHA home purchase loan
  • Borrowers with credit scores between 500 to 579 FICO are eligible to qualify for FHA loans with 10% down payment
  • You do not have to pay off outstanding collections and/or charged-off accounts to qualify for FHA loans
  • Manual Underwriting allowed
  • Maximum front-end debt to income ratio of 46.9% and a maximum back-end DTI of 56.9% to get an approve/eligible per AUS
  • Two-year mandatory waiting period after Chapter 7 Bankruptcy discharged date
  • Three-year mandatory waiting period after foreclosure, deed in lieu of foreclosure, short-sale
  • Borrowers can qualify for an FHA loan during Chapter 13 repayment period one year into the plan with Trustee approval
  • There is no waiting period requirement after Chapter 13 bankruptcy discharged date
  • All Chapter 13 Bankruptcy that has not been seasoned for at least two years after the discharged date need to be manually underwritten

To qualify for an FHA loan with a national five-star lender with no lender overlays, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com.

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