Qualifying For FHA Loan With Low Credit Scores

This BLOG On Qualifying For A FHA Loan With Low Credit Scores Was Written By Gustan Cho NMLS 873293

Many home buyers, especially first time home buyers do not realize that you can qualify for a FHA Loan with low credit scores. I have many borrowers who contact my offices everyday and tell me that they were told by other lenders that they doe not qualify for FHA Loan with low credit scores and are told that they need at least a 620 FICO credit score. Some borrowers are even told that they need a 640 credit score. This is not true. FHA Guidelines on Credit Score requirements is that a borrower can qualify for a 3.5% down payment home purchase FHA Loan with a 580 FICO Credit Score. Lenders can have higher standards and require higher credit scores than the 580 FICO Credit Score FHA requires. The higher credit score requirement asked by lenders is called lender overlays on credit scores which is perfectly legal to do. FHA Lenders do need to meet the minimum FHA Guidelines but can set higher credit and income standards than those imposed by FHA. Again, this higher standard is called overlays on FHA Loans.

One of the main objectives with the Federal Housing Administration, FHA, is to promote home ownership for first time home buyers and consumers who had prior bad credit and who are seeking for a mortgage with low credit scores.

  • A home buyer can qualify for a FHA insured home loan with a 3.5% down payment with a credit score as low as 580 FICO. 
  • FHA allows home buyers with credit scores under 580 FICO to qualify for FHA loans as long as the home buyer has a 10% down payment. 
  • As long as the mortgage loan borrower has documented income, they will eventually qualify for a mortgage with low credit scores.

FHA Loan With Low Credit Scores Versus Bad Credit

Mortgage loan borrowers seeking a mortgage with low credit scores do not necessarily have bad credit.

  • You can have low credit scores with good credit.  How?
  • If you have no active credit trade lines, the chances are that your credit scores will be low. 
  • You can have no history of delinquent payments, no prior bankruptcy, no foreclosures on your credit report and still have credit scores under 600 FICO.
  • Mortgage loan borrowers with bad credit can have high credit scores as long as the bad credit history has been aged and they have active credit trade lines.
  • Consumers with a prior bankruptcy, foreclosure, charge offs and unpaid collection accounts can have credit scores of higher than 700 FICO as long as they have active on time credit trade lines. 
  • The older the derogatory credit item is, the less impact it has on the consumer’s credit scores.
  • You can have low credit scores with perfect credit if your credit cards are maxed out. 
  • By paying down your credit cards, your credit scores will improve right away, many times by the next billing cycle.

Borrowers can have high credit scores but will not qualify for a FHA Loan if they had many late payments in the past 12 months or more than one late payment on a home mortgage. FHA Loan With Low Credit Scores is not the only issue when it comes to qualifying for a FHA Loan. Lenders will review the overall credit report of the borrower.

Importance Of Credit Scores

Credit scores range from a low of 300 to 850. 

  • The higher the credit score, the better the terms and mortgage rates a mortgage loan borrower will get. 
  • Home buyers or homeowners looking for a home purchase loan or a refinance mortgage loan should start looking for improving their credit scores and review their credit report for any errors and see if they can maximize their credit scores. 
  • Credit scores is what determine whether or not you will qualify for a mortgage and the mortgage rates you will be quoted. 
  • A high credit score is 740 or higher, excellent credit score is 700 to 739, good credit score is 640 to 699, poor credit scores are 600 to 649, and bad credit scores are under 600. 
  • Statistics show that more than 33% of mortgage loans were closed with borrowers with credit scores under 700 FICO in 2014 and a year earlier in 2013, 27% of the mortgage loans in the nations were from borrowers with credit scores under 700 FICO.

Qualifying For FHA Loan With Low Credit Scores

FHA loan programs are much more generous in catering for home loan borrower who need mortgage with low credit scores.  Minimum credit score requirements for a 3.5% down payment FHA home loan is 580 FICO whereas a minimum credit score of 620 FICO is needed for home buyers seeking a conventional loan.  Home loan borrower with credit scores under 580 FICO can qualify for FHA loans as long as they have a 10% down payment. If you need a mortgage with low credit scores, please contact Gustan Cho Associates at 262-716-8151. We are available 7 days a week. The Gustan Cho Team at CrossCountry Mortgage Inc. NMLS 3029 is a five star national mortgage banking firm licensed in 50 states known for its no overlays on government and conventional loans.

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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