FHA Minimum Credit Score Guidelines And Requirements

This BLOG On FHA Minimum Credit Score Guidelines And Requirements Was UPDATED And PUBLISHED On July 10th, 2020

FHA minimum credit score guidelines to qualify for a 3.5% down payment home purchase mortgage loan is set at 580.

  • If credit scores fall between 500 and 579, borrowers can still qualify for an FHA Loan but the minimum down payment requirement is 10% down payment
  • The reason why home buyers with credit scores under 580 credit scores require 10% down payment is that lenders view lower credit score borrowers high risk
  • The higher borrower’s credit score is, the lower the interest rates are
  • Credit scores are associated with risk in the eyes of lenders

Mortgage lenders view lower credit score borrowers as having a higher chance of defaulting on their home loans.

What Determines Mortgage Rates And FHA Minimum Credit Score Guidelines

Having prior bad credit such as older unpaid collection accounts, prior late payments, prior bankruptcy, prior foreclosure, prior deed in lieu of foreclosure, prior short sale do not have any bearing on mortgage interest rates

  • The sole determinant on interest rates is credit scores on FHA Loans
  • Borrowers can have a prior bankruptcy and foreclosure
  • But as long as they have high credit scores, it will not affect mortgage rates
  • Other factors in mortgage rates besides credit scores are the property type
  • For example, mortgage rates on condominiums and multi-family properties are higher on single-family homes
  • This because mortgage lenders classify condominiums and multi-family units higher risk
  • Also, second home and investment home financing have higher mortgage rates than owner occupant home financing
  • This is because lenders view second home and investment home financing as higher risk
  • In the event homeowners face a personal financial crisis, the chances are less likely to default on his or her owner occupant home than defaulting on their second home or investment home

This is the mentality of mortgage lenders.

Credit Scores And Mortgage Rates

Even though the FHA minimum credit score guidelines may be 580 to qualify for a 3.5% down payment home purchase mortgage loan, having higher credit scores is a plus.

  • Mortgage underwriters really scrutinize borrowers with under 620 credit scores
  • First and foremost, borrowers with credit scores of 620 and under will definitely have higher mortgage rates
  • This is since lenders classify them as higher risk
  • Remember that lenders determine mortgage rates by credit scores
  • The lower the borrower’s credit score, the higher the mortgage rates
  • The lower borrowers credit score, the higher the risk is on how underwriters view borrowers
  • It is no just mortgage lenders
  • All creditors will judge a loan application that way
  • Same with auto loans

The lower consumer credit scores, the higher the automobile interest rate will be.

Verification Of Rent

Other factors of having a lower credit score are lenders may require verification of rent for borrowers who have lower than 620 credit scores.  They may also require reserves as well.  Many lenders will not allow the mortgage loan applicant to get gift funds for their down payment if their credit scores are under 600.  The bottom line is if borrowers have lower credit scores, try to boost them up.  To qualify for an FHA loan with lower credit scores, please contact us at Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for faster response. Homebuyers can start the pre-approval process by clicking APPLY ONLINE NOW and complete the 4-page online application.  I will get alerted via email and I will contact you to go over the information and issue you a pre-approval letter.

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