FHA Minimum Credit Score Requirement In Illinois On Home Purchase

Gustan Cho Associates are mortgage brokers licensed in 48 states

This BLOG On FHA Minimum Credit Score Requirement In Illinois On Home Purchase Was UPDATED And PUBLISHED On May 28th, 2020

What should be the minimum FHA Illinois creditworthiness when buying a home

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. FHA 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 have been originated and funded by banks and private mortgage companies against default and foreclosure and loss by lenders. 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. However, borrowers with scores between 500 and 579, 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
  • 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 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 have a maximum cap on DTI between 45% to 50% DTI

This is called a overlay on debt to income ratio.

Agency Guidelines Versus Lender Overlays

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 500 credit score with 10% down payment or equity in the house
  • Gustan Cho Associates is a national five-star mortgage company with no lender overlays on government and conventional loans
  • Gustan Cho Associates are also are correspondent lenders on non-QM loans and bank statement loans for self-employed borrowers
  • We can originate and fund FHA loans with 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
  • Gustan Cho Associates Mortgage Group has no lender overlays on FHA Loans, VA Loans, USDA Loans, and Conventional Loans

We will just go off the findings from the Automated Underwriting System.

Non-Traditional Versus Traditional Tradelines

What is the difference between non-traditional and 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

Untraditional credit tradelines are creditors such as utilities, cell phone, insurance, educational expenses that do not report to credit bureaus.

Examples Of Credit Tradelines

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.

FHA Minimum Credit Score Requirement And The Importance Of Re-Establishing Credit After Bankruptcy And Foreclosure

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 the 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 re-establish their credit and see if they can take it above a 580 credit score.  Gustan Cho Associates helps hundreds of 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

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

  • FHA does not require the 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 here is how it works:

  • 5% of the unpaid collection balance will be used towards calculating debt to income ratios
  • This is the case even though no payments need to be made to the creditor

This rule only applies to non-medical collections.

Contact Gustan Cho Associates With No Overlays On FHA Minimum Credit Score Requirement

Why contact Gustan Cho Associates

Homebuyers who were told that they do not qualify for a mortgage loan by other mortgage companies due to their lender overlays, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Borrowers can also email their inquiry at gcho@gustancho.com.  Gustan Cho Associates and the team of licensed team of mortgage loan originators are available 7 days a week to issue pre-approvals. Gustan Cho Associates is licensed in multiple 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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