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FHA Loans 580 Versus 620 Credit Scores And DTI Requirements

FHA Loans 580 Versus 620 Credit Scores And DTI Requirements

This BLOG On FHA Loans 580 Versus 620 Credit Scores And DTI Requirements Was UPDATED On January 20th, 2019

Not all FHA Mortgage Lenders have the same FHA Credit Score Requirements. Most lenders have mortgage overlays which are additional guidelines that are above and beyond those of HUD Minimum Guidelines.

Here are common mortgage overlays imposed by lenders:

  • Overlays On Credit Scores
  • Overlays On Debt To Income Ratio
  • Overlays On Collections And Charge Off Accounts
  • Overlays In Qualifying For FHA Loans During And After Chapter 13 Bankruptcy
  • Tradelines
  • Verification Of Rent

Qualifying For FHA Loans 580 Versus 620 Credit Scores

Over 75% of our borrowers at Gustan Cho Associates are folks who either gotten a last minute loan denial or cannot qualify with a current lender due to the overlays the lender has.

  • Many home buyers are told that they do not qualify for FHA Loans 580 Versus 620 Credit Scores
  • Most banks will require 640 scores while most smaller mortgage companies require 620 credit scores
  • This holds true even though FHA only requires 580

For borrowers to qualify for a 3.5% down payment residential FHA Loan, the minimum credit score required is 580.

  • A lender with no overlays can get borrowers with credit scores of 580 scores approved for FHA Loans all day loan
  • This holds true as long as the borrower can get an automated approval per Automated Underwriting System

Debt To Income Ratio On FHA Loans 580 Versus 620 Credit Scores

Borrowers will lower credit scores will be capped at a lower debt to income ratio to get an approve/eligible per AUS FINDINGS. There are negatives with under 620 credit score borrowers.

  • Credit scores between 580 and 619 the back end debt to income ratios will be capped at 43% to get an approve/eligible per AUS
  • The debt to income ratio cap is much greater for borrowers who have credit scores 620 versus 580
  • We will discuss later on this blog
  • With credit scores under 620, mortgage rates will be higher
  • Automated Underwriting System may require rental verification if credit scores are under 620
  • VOR may or may not be required depending on what the Automated Underwriting Systems comes back with

Qualifying For FHA Loans With Under 580 Scores

If credit scores fall between 500 and 579 scores, borrowers can still get approved for FHA Loans. However, under HUD Guidelines, 10% down payment is required on home purchase for borrowers with under 580 credit:

  • The Automated Underwriting System Findings may require other conditions on findings with lower credit scores borrowers such as the following:
    • Rental verification
    • Reserves
    • No gift funds
    • Higher mortgage rates
  • Borrowers with credit scores just slightly under 580 might want to have their mortgage loan originator help them boost up their credit scores over the 580 threshold before starting the mortgage process

FHA Loans 580 Versus 620 Credit Scores And Difference In DTI Requirements

There are differences with FHA Loans 580 Versus 620 Credit Scores:

  • One of the greatest benefits besides the 3.5% down payment is that the back end debt to income ratios are capped at 56.9% and the front end debt to income ratios is capped at 46.9% with borrowers who have at least a 620 credit score or higher
  • Rental verification is not required and mortgage rates are lower with over 620 scores
  • Borrowers who fall short of the 620 score threshold and have higher debt to income ratios, it will be worthwhile to work with mortgage loan originator in trying to boost credit scores over the 620 threshold

Mortgage Lender Overlays FHA Loans 580 Versus 620 Credit Scores

Gustan Cho Associates at Loan Cabin Inc. a direct lender with no overlays on government and conventional loans.

  • Many lenders have their own overlays where they have their own cutoff credit scores such as 640
  • However, the 640 credit score requirement is not federal lending guidelines but the lender’s own lending guidelines
  • It is unfortunate many borrowers and professional real estate agents do not know this
  • It is sad that many borrowers and realtors give up just because the borrower got denied for a mortgage loan
  • I originate and close on residential mortgage loans with credit scores under 620 FICO every month
  • Borrowers can have lower credit scores, prior bad credit, and other periods of bad credit history and get approved for a mortgage loan
  • Home Buyers who have been told NO for having lower credit scores, open collections, or prior bad credit please contact me at 262-716-8151 or text us for faster response
  • Or visit us at www.gustancho.com

Qualifying For Home Loan With Bad Credit With Direct Lender With No Overlays

Borrowers with prior bad credit and/or had a prior bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale, can contact us at The Gustan Cho Team at Loan Cabin at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com. We are available 7 days a week, evenings, weekends, and holidays. Gustan Cho Associates at Loan Cabin Inc. are direct lenders with no mortgage overlays on government and/or conventional loans.

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