FHA Minimum Credit Score Requirement In Illinois

This BLOG On What Is FHA Minimum Credit Score Requirement In Illinois Was UPDATED On March 27, 2017

FHA Loans are by far the most popular loans today in the United States. The Federal Housing Administration is part of the United States Housing Administration and is not a mortgage lender and has nothing to do with the origination and funding of FHA Loans. FHA’s sole role and mission is to insure FHA home loans that has been originated and funded by banks and private mortgage companies against default and foreclosure. If lenders followed HUD Guidelines when underwriting the FHA Loan and that loan defaults, then the lender is insured by FHA.

What Is The Lowest Credit Score FHA Requires?

FHA Minimum Credit Score Requirement is 500 FICO. However, borrowers with scores between 500 and 579 FICO, HUD requires 10% down payment and 90% Loan To Value on FHA Refinances. Most lenders have FHA Lender Overlays where they set their own FHA Minimum Credit Score Requirement which may be 620 to 640 FICO. One of the greatest benefits with FHA Loans is that home buyers are able to qualify with 3.5% down payment. FHA Minimum Credit Score Requirement to qualify with 3.5% down payment, one needs a 580 credit score.

Lender Overlays

Lender Overlays are additional lending requirements set by each individual lender that surpasses HUD Guidelines. Just because a borrower has an approve/eligible per Automated Underwriting System does not mean that a FHA Lender will accept that borrower.

Here are some lender overlays that are common among lenders:

  • FHA Requires a 580 credit score for borrowers to qualify with 3.5% down payment. Most lenders will not go below 620 FICO credit score. This is called a FHA Lender Overlay on credit scores.
  • The Automated Underwriting System will yield an approve/eligible per AUS FINDINGS with a 46.9% front end debt to income ratio and 56.9% back end debt to income ratio. However, most lenders has a maximum cap on DTI between 45% to 50% DTI. This is called a overlay on debt to income ratio.

Most lenders require a 640 min credit score, and 3 open and active trade-lines for the last 12 months. There are some FHA portfolio lenders that will go down to a 530 credit score with 10% down payment or equity in the house. Nationwide Mortgage & Realty LLC has correspondent relationship with wholesale lenders that allow 10% down with a 500 credit score.  To qualify for a 3.5% down payment home purchase FHA loan, a home buyer needs a minimum of a 580 FICO credit score. The Gustan Cho Team at Nationwide Mortgage & Realty LLC does not have any overlays on FHA Loans, VA Loans, USDA Loans, and Conventional Loans and will just go off the findings from the Automated Underwriting System.

Non-Traditional Versus Traditional Tradelines

Most lenders have overlays on the number of tradelines a borrower is required to have. There are two types of credit tradelines. The first and most preferred by lenders are traditional credit tradelines. Traditional credit tradelines are creditors that report to most of the three credit bureaus.

Examples of traditional credit tradelines are the following:

  • Credit Card Accounts
  • Department Store Accounts
  • Furniture Store Accounts 
  • Automobile Loans
  • Student Loans
  • Mortgages
  • Other Credit Or Installment Accounts reporting on credit reporting agencies

Many folks who went through a prior bankruptcy or foreclosure who want nothing to do with credit and pay everything with cash. Unfortunately, this is not good when applying for a home loan because no credit is same as bad credit. Consumers with no re-established credit can have low credit scores. Lenders want to see that mortgage applicants have a credit payment history. In lieu of traditional credit tradelines, some lenders will accept non-traditional credit tradelines.

Examples of non-traditional credit tradelines are the following:

  • Rental payments, often called verification of rent
  • Insurance payments
  • Utility payments such as electric, gas, water, cable, internet
  • Cell phone payment

For those home purchasers who do not have the 10% down payment to put down towards the down payment of their home purchase, they can wait until they reestablish their credit and see if they can take it above a 580 credit score.  The Gustan Cho Team at Nationwide Mortgage & Realty LLC helps hundreds of FHA loan mortgage borrowers in boosting their credit scores up prior to submitting a mortgage loan application.  By working on the home mortgage loan borrower’s credit first might take a few months but the end result is well worth the rate.

Home Loan With Bad Credit

Home buyers seeking home loan with bad credit can now qualify with a FHA Loan. Bad credit mortgage borrowers can take advantage of the lenient underwriting guidelines a FHA loan has to offer.

FHA does not require borrower to pay outstanding collections and charge off accounts to qualify for FHA Loans. Medical collections and charge off accounts are exempt from debt to income calculations. However, if the borrower has more than $2,000 worth of unpaid collection accounts, 5% of the unpaid collection balance will be used towards calculating debt to income ratios even though no payments needs to be made to the creditor.  This rule only applies to non-medical collections.

Contact The Gustan Cho Team at Nationwide Mortgage & Realty LLC

Home buyers  who were told that they do not qualify for a mortgage loan by other mortgage companies due to their lender overlays, please contact The Gustan Cho Team at Nationwide Mortgage & Realty LLC at 262-878-1965 or text Gustan for faster response on his cell at 262-716-8151. Borrowers can also email their inquiry at gcho@gustancho.com.  Gustan Cho and his licensed team of mortgage loan originators are available 7 days a week to issue pre-approvals.  Nationwide Mortgage & Realty LLC is headquartered in Oak Brook, Illinois and licensed in other states and has a national reputation for no overlays on government and conventional loans. Borrowers can also apply online by clicking APPLY NOW and we will get alerted and work on your online mortgage loan application and issue you a pre-approval.

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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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