FHA Loans Down To 500 Credit Scores With 10% Down Payment

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 This ARTICLE On FHA Loans Down To 500 Credit Scores With 10% Down Payment Was PUBLISHED On March 26th, 2020

What FHA loans look like up to 500 credit points with a 10% down payment

FHA loans are the most popular loan programs available for first-time homebuyers and buyers with less than perfect credit.

  • HUD, the parent of FHA, will insure private lenders in the event borrowers default on their FHA mortgages
  • This is the reason why FHA loans have only 3.5% down payment requirements, low mortgage rates, and easy lenient credit requirements
  • To qualify for a 3.5% down payment home purchase FHA loan, the borrower needs a 3.5% down payment
  • However, borrowers with under 580 FICO and down to 500 credit scores are eligible to qualify for FHA loans
  • However, borrowers who fall in the 500 to 570 FICO credit score category, HUD require a 10% down payment versus 3.5%
  • HUD is not a lender
  • FHA is a federal government agency under HUD which insures and partially guarantees lenders on FHA loans in the event of borrower default
  • HUD created and launched FHA to promote homeownership in the United States
  • With the low down payment requirements and lax credit guidelines, many renters can become homeowners

In this article, we will discuss and cover qualifying for FHA Loans Down To 500 Credit Scores With 10% Down Payment.

FHA Loans Down To 500 Credit Scores Versus Over 580 FICO

Gustan Cho Associates Mortgage Group is a five-star mortgage company licensed in multiple states.

  • The Team at GCA Mortgage Group are experts and specialists in helping borrowers qualify for FHA Loans Down To 500 Credit Scores
  • The difference between FHA Loans Down To 500 Credit Scores versus over 580 FICO is the down payment requirements
  • HUD, the parent of FHA, requires any borrower with credit scores over 580 to put down 3.5% as their down payment
  • Any borrower with credit scores under 580, a 10% down payment is required

The minimum credit score required to qualify for FHA loans is 500 FICO.

HUD Agency Guidelines Versus Lender Overlays

What are the HUD guidelines vs. lender overlays?

All HUD-approved mortgage lenders need to have their borrowers meet the minimum FHA lending guidelines by HUD.

  • However, most lenders will have lender overlays of their own
  • What are lender overlays?
  • Lender overlays are additional mortgage guidelines that are above and beyond HUD agency guidelines
  • For example, the minimum credit score requirement to qualify for an FHA loan is 500 FICO
  • 10% down payment is required for borrowers who have credit scores between 500 to 579 FICO
  • However, a lender can turn down a borrower with 500 credit scores who have a 10% down payment with an approve/eligible per automated underwriting system
  • The lender can deny any borrowers on FHA loans even though they meet the minimum FHA Guidelines and require higher credit score requirements
  • The lender can require a 620 to 640 credit score as part of their overlays

Gustan Cho Associates Mortgage Group is one of the very few national mortgage companies that have no lender overlays on FHA loans and other government and conventional mortgages.

Automated Underwriting System Versus Manual Underwriting

All FHA mortgage applications go through the Automated Underwriting System (AUS).

  • The AUS is a sophisticated computed system that analyzes the borrower’s credit scores, payment history, income, assets, liabilities, derogatory tradelines, and other factors
  • Within seconds, the computer system will render findings
  • The key finding we expect is an approve/eligible per automated underwriting system
  • With an approve/eligible, lenders with no lender overlays can proceed processing and underwriting the borrower
  • Borrowers who cannot get an approve/eligible but get a refer/eligible findings can be manually underwritten
  • With manual underwriting, borrowers need to be timely in their payments for the past 24 months

It is difficult to get an approve/eligible per automated underwriting system with late payments in the past 12 months. Both the lender and the AUS expect timely payments in the past 12 months.

FHA Loans Down To 500 Credit Scores: What If I Cannot Come Up With A 10% Down Payment?

What If I Cannot Come Up With A 10% Down Payment?

As mentioned, borrowers with under 580 credit scores need a 10% down payment. If the borrower with under 580 credit scores does not have the 10% down payment, the team at Gustan Cho Associates can help the borrower boost their credit scores within a short period of time. GCA Mortgage Group has many quick fixes in helping borrowers boost their credit scores. For more information on qualifying for an FHA loan with lower credit scores, 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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