HUD Credit Score Guidelines On FHA Home Loans


This BLOG On HUD Credit Score Guidelines On FHA Home Loans Was UPDATED And PUBLISHED On February 12th, 2020

What are the HUD credit assessment guidelines for FHA home loans

There are minimum credit score requirements to qualify for FHA Loans:

  • HUD Credit Score Guidelines state that in order for a borrower to qualify for 3.5% down payment purchase and/or refinance, the borrower must have a 580 Credit Score
  • FHA is part of the United States Department of Housing and Urban Development or HUD
  • It is a federal organization that insures FHA Loans to lenders who are HUD Approved Lenders
  • FHA does not originate mortgage loans

In this article, we will discuss and cover HUD Credit Score Guidelines On FHA Home Loans.

How Does FHA Work

FHA will insure lenders who have originated and funded an FHA Loan against borrower default.

Here is how FHA works:

  • FHA approved mortgage lender will qualify a borrower
  • The borrower needs to meet FHA Guidelines such as minimum credit score requirements, debt to income ratio requirements, waiting period after bankruptcy and foreclosure, etc.

The lender does not have to just adhere to the minimum FHA Guidelines but can have additional tougher FHA Requirements:

  • These additional lender requirements are called FHA Lender Overlays
  • Overlays are NOT imposed by HUD
  • Overlays are additional guidelines on top of agency guidelines by lenders

HUD will insure lenders if borrowers default on their FHA Loans.

What Are Lender Overlays

What Are Lender Overlays

Reason lenders have overlays is because whenever an FHA Loan defaults, it goes against the lender:

  • If too many FHA Loans default, lenders can be cut off from doing FHA Loans by HUD
  • Although FHA guarantees defaulted FHA Loans, they do not like the fact that the loan has defaulted
  • Defaults will be counted against the lender who their borrowers default on their FHA Loans
  • Consistent default which could ultimately force HUD to cut lenders off from HUD Approval

Borrowers With Credit Scores Under 620 FICO

Although borrowers with credit scores under 620 FICO qualify for FHA Home Loans, most lenders will not take any borrowers unless their credit scores are at least 620 FICO or higher.

  • Many Lenders will not take on any borrowers who do not have at least a 640 FICO credit score
  • Again, if borrowers credit scores are under 640 FICO, make sure lender borrowers consult with does not have any overlays
  • Look for lenders with no overlays on credit scores like Gustan Cho Associates
  • Again, just because borrowers meet all FHA Guidelines may mean they qualify with all lenders
  • The breakpoint with big changes in FHA Guidelines is the 620 Credit Score Mark

HUD Credit Score Guidelines does have an impact on borrowers who have credit scores under 620 FICO.

HUD Credit Score Guidelines With Credit Scores Under 620 FICO

What are the guidelines for assessing HUD creditworthiness with a creditworthiness scale below 620 FICO

Here are the differences in qualification requirements with HUD Credit Score Guidelines on borrowers with credit scores under 620 FICO:

  • Debt To Income Ratio Requirements for borrowers with under 620 FICO credit scores is capped at 43%
  • Debt To Income Ratio Requirements for borrowers with over 620 FICO credit scores is capped at 46.9% DTI front end and 56.9% DTI back end
  • Outstanding collections and charge offs do not have to be paid
  • Credit disputes are allowed on medical collection accounts and non-medical collection accounts with zero balance
  • Credit disputes are not allowed on charge off accounts

Any non-medical collection accounts with over $1,000 in the total aggregate collection account balance.

HUD Credit Score Guidelines Versus Lender Overlays

Many Lenders will require the following additional requirements. It is not mandated by HUD. but by the individual mortgage lender may have additional guidelines called overlays. The requirements below are common requirements that many lenders require borrowers who have credit scores of under 620 FICO.

They are called lender overlays. Here are typical overlays:

  • Minimum of three credit tradelines that have been seasoned 12 to 24 months.
  • The requirement of verification of rent
  • Verification of rent is providing 12 months canceled checks of the borrower’s rent payments
  • However, many folks who are living with family rent free cannot provide verification of rent so they would not qualify with this particular lender
  • Need to consult with another lender that does not have verification of rent overlays


  • Many lenders will have overlays for borrowers with under 620 FICO credit scores
  • They cannot get any gift funds for a down payment plus have three months of reserves as their overlays
  • This is not a HUD Requirement on the Automated Approval but a lender overlay with particular lenders

Front End Debt DTI:

  • Some lenders may require a front end 31% Debt to Income Ratio Overlay
  • The front end debt to income ratio is the total housing payment (P.I.T.I.) divided by the borrower’s monthly gross income

Homebuyers who do meet the minimum FHA Guidelines but are told they do not qualify for an FHA Loan because of the particular mortgage overlays, please contact us at Gustan Cho Associates at 262-716-8151 or text for a faster response. Or email us at  Our loan officers specialize in all FHA Loan Programs that are best suited to you.

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