FHA Credit Score Guidelines To Qualify For FHA Home Loans

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FHA Credit Score Guidelines To Qualify For FHA Home Loans

This BLOG On FHA Credit Score Guidelines To Qualify For FHA Home Loans Was UPDATED On May 20th, 2018

All mortgage loan programs have minimum credit score requirements.

  • FHA minimum credit scores depends on the amount of down payment
  • FHA minimum credit scores will have an impact on debt to income ratios
  • HUD announced that FHA Guidelines with regards to credit scores will remain the same as last year
  • Besides FHA minimum credit scores required, borrowers also need to meet other qualifying factors such as the following

620 Credit Scores Versus Debt To Income Ratios

Borrowers with credit scores of at least 620 or higher, can qualify for a 3.5% down payment FHA loan and have a front end debt to income ratio as high as 46.9% and back end debt to income ratio as high as 56.9% to get AUS Approval:

  • 100% gift funds are allowed with credit scores higher than 620
  • Verification of rent is normally not required with credit scores higher than 620 credit score

FHA Credit Score Guidelines With Scores Between 580 And 620

FHA Credit Score Guidelines with 3.5% down payment is 580 minimum.

  • Any borrowers whose credit scores are under 580, FHA requires a 10% down payment
  • Minimum down payment required is 3.5% down payment for a home purchase but borrowers need a minimum of 580 credit scores
  • However, a major disadvantage of having credit scores under 620 is that the debt to ratio cap drops significantly to get approve/eligible per Automated Underwriting System
  • If credit scores fall between 580 and 579 the debt to income ratio is capped at 43% by AUS
  • Many lenders may require verification of rent for borrowers with credit scores under 620
  • This is the case even though the automated findings may not request it
  • Although FHA allows up to 100% gifted funds for the down payment, many lenders may require that gift funds are not allowed as part of their lender overlays
  • It is up to the lender as part of their overlays to require that the borrower’s own funds are permitted for the down payment
  • Some lenders may require reserves
  • One months reserves is one month of principal,interest, taxes, and insurance, also referred to as PITI
  • Many lenders may require verification of rent for borrowers with credit scores between 580 and 620

FHA Credit Score Guidelines With Under 580 Scores

FHA Credit Score Guidelines on minimum credit scores to qualify for FHA loan is 500:

  • However, as mentioned earlier, if credit scores fall below 580, a 10% minimum down payment is required
  • Just coming up with the 10% down payment is not the only requirement
  • Lenders are extremely careful when underwriting borrowers with credit scores under 580
  • Mortgage rate will definitely be much higher
  • Rental verification will be required because of the payment shock issue
  • Payment shock is the percentage of what the renter is currently paying compared to the new principal, interest, taxes, and insurance payment
  • For example, here is case scenario:
    • if current rent is $1,000 per month
    • new proposed mortgage payment will be $1,050 per month
    • the payment shock is only 5%
    • which is great and the new homeowner will have no problem adjusting to the new proposed housing payment
  • Rental verification from a private landlord can only be used by providing 12 months canceled checks
  • Rental verification from a property management company can be used if VOR Form provided by lender can be completed by property manager in lieu of 12 months canceled checks and/or bank statements

Lender Overlays From FHA Lenders

The above FHA Credit Score Guidelines to qualify for FHA Loan are those implemented by HUD, the parent of FHA:

  • However, lenders may have their own FHA mortgage lending overlays which surpass the minimum mandated by FHA
  • For example, here is case scenario:
    • 3.5% down payment FHA loan
    • required is 580 credit scores
    • many banks, credit unions, and mortgage bankers may not accept any FHA mortgage loan applicants who do not have a 640 credit score
    • These banks, credit unions, and mortgage companies with credit score overlays tell these potential home buyers that they do not qualify

Home buyers who are told they do not qualify due to not meeting the 620 to 640 credit scores, no worries.  Contact us at Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for faster response.  I am a no mortgage lender overlay lender and just go off the minimum HUD lending guidelines and have no overlays. Minimum credit scores to qualify for FHA Loan is 580.

Related> Improving credit scores to qualify for mortgage

Related> Mortgage with 580 credit score

Related> Mortgage approval with credit score under 620 FICO

6 Comments
  1. Carrie duncan says

    Are u an actual lender. Also to do the 203k loans do u have to have a higher credit score.

    1. Gustan Cho says

      Yes, we are mortgage bankers and are actual mortgage lenders. We do FHA 203k Loans. Please contact me at 262-716-8151 or email me at GLCProperties@aol.com

      Gustan Cho NMLS 873293
      http://www.gustancho.com
      The Money Store

  2. Amy Hagler says

    How long does it typically take you to get a clearance to close from the day you get the file on an FHA loan that has already been approved in automated underwriting with credit above 640 and solid employment for 10 years along with good DTI ratios? Are you a broker and who does the underwriting and owns the loan?

    1. Gustan Cho says

      From the day we get the signed mortgage docs, it should take no later than 30 days to fund and close the loan. We can close it earlier if we put a rush on the appraisal. Appraisal normally takes a week to order and get back the report. We are mortgage bankers with no lender overlays and fund our own loans and do not broker any files out. Please contact me at 262-716-8151 or email me at gcho@gustancho.com if you have any questions.

      Gustan Cho NMLS 873293

  3. T Elise says

    Wanting to buy a house before 2015 ends, Already have a house in mind, however been working on my credit that past 5 months from where it was before, but still under 580. Is there anyway you can help me?

    1. Gustan Cho says

      Under FHA Guidelines, you need a 580 FICO credit score to qualify for a 3.5% down payment home purchase loan. If you can get a few secured credit cards, that can boost your credit scores or if you can add yourself as authorized user to a family member’s credit card account, that should do the trick. The person you are adding your name to needs to have perfect payment history on their credit card payment history and a very low credit card balance in order for it to work. Feel free to contact me or email me.

      Gustan Cho
      GLCProperties@aol.com
      262-716-8151

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