FHA Loans With Under 620 Credit Scores
HUD allows borrowers with credit scores down to a 500 FICO to qualify for FHA loans as long as they meet all HUD Agency Mortgage Guidelines
This article covers FHA loans for borrowers with low credit scores.
Not all lenders have the same lending requirements for government-backed and conventional loans. This holds especially true for FHA home loans. FHA loans popular with borrowers who have some qualifying hurdles. These include lower credit scores, smaller down payments, and higher debt-to-income ratios.
It is easier to get an approve/eligible decision from an automated underwriting system, even with a low credit score, through the FHA program than most other mortgages. Borrowers must meet the minimum HUD mortgage guidelines for FHA loans. However, each lender can add stricter requirements called lender overlays. These overlays can make it harder for applicants with bad credit scores to get loan approval.
Most lenders add some overlays. However, Gustan Cho Associates has no lender overlays for government or conventional loans. HUD agency guidelines allow FHA approval for borrowers with credit scores as low as 500.
Getting FHA Mortgage Approval With Low Credit Scores
Over 75% of our borrowers at Gustan Cho Associates Mortgage Group are folks who either gotten a last-minute loan denial or are stressing over their mortgage process because of lender overlays.
Why is it that lenders have different credit score requirements? Most banks require a 640 credit score while most mortgage companies set minimum credit scores at 620. However, the U.S. Department of Housing and Urban Development (HUD), the parent of FHA, established the minimum credit score of 580 for borrowers to qualify for 3.5% down payment home purchase FHA Loans.
At Gustan Cho Associates, applicants can qualify for FHA loans with credit scores under 620.
FHA Guidelines for Credit Scores Under 620
Most FHA mortgage applications are underwritten by software called Automated Underwriting Systems, or AUS. The AUS weighs all factors in an application including debt-to-income ratio, credit score, income, down payment, and savings (called reserves).
As long as the AUS issues an approve/eligible recommendation, you can get a loan approval from Gustan Cho Associates.
However, if the software cannot issue an approval, it will come back with either a loan denial (refer with caution) or a requirement for manual underwriting. An application can require manual underwriting by a human if the system doesn’t have enough information (for instance, your credit report has no score).
If your application cannot go through AUS, you’ll have a much harder time getting an FHA mortgage approval with a low credit score.
Can You Qualify for FHA Loans With Low Credit Scores and Collections?
The Federal Housing Administration does not require you to pay all collections before closing on your loan.
Charge-offs and older late payments are acceptable. However, recent late payments can be a problem. Mortgage underwriters do not want to see late payments in the past 12 months. You might be able to secure approval if there are extenuating circumstances. However, a human underwriter has to look at the file. That’s because an AUS has no way of knowing if a late payment was your fault or not.
Never pay an older collection account because it reactivates the derogatory credit item and makes it new again. Newer items on credit reports impact scores much more than older items.
Information on the credit reports is included in decisions by Automated Underwriting Systems.
Contact Us for FHA Loans With No Overlays
If you have been denied a home loan by a bank, mortgage banker, or mortgage broker, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at email@example.com.
A good percentage of our borrowers have under 620 credit scores. And our borrowers can close their mortgage loans once they get an approve/eligible decision by an AUS. All of our pre-approvals are full credit approvals underwritten and signed off by our mortgage underwriters.