How To Improve Credit Scores To Qualify For FHA Loans

Gustan Cho Associates are mortgage brokers licensed in 48 states

This BLOG On How To Improve Credit Scores To Qualify For FHA Loans Was UPDATED On December 13th, 2018

How To Improve Credit Scores To Qualify For FHA Loans

All lenders will qualify an individual for a mortgage loan based on income, debts, assets, and most importantly, credit scores. Credit Scores fluctuate month to month. There are many ways to Improve Credit Scores To Qualify For FHA Loans for the borrower who does not meet minimum credit score requirements.

  • Credit scores are what decides whether borrowers qualify for a mortgage loan
  • All mortgage lenders have credit score cutoffs
  • They have a minimum credit score requirement
  • There are ways to Improve Credit Scores To Qualify For FHA Loans
  • Credit Scores also play a major role in determining mortgage rates
  • For example, the majority of the banks will not accept a mortgage loan applicant who has a credit score below 640 FICO
  • This holds  true even though HUD Guidelines On Credit Score Requirements is 580 FICO
  • The reason many lenders have higher credit score requirements is that they can have their own overlays
  • Overlays are mortgage requirements that each individual lender can impose that is higher than those of FHA Guidelines
  • Most folks who have credit scores under 640 FICO would need to seek the help of lenders with no overlays
  • Every mortgage banker can have their own minimum credit score requirement
  • Portfolio lenders can have minimum credit score requirements
  • Condotel lenders have a minimum credit score requirement of 680
  • Borrowers can qualify for FHA Loans with under 580 credit scores:
    • But any borrower with scores between 500 and 579 need to put 10% down payment

In this article, we will cover and discuss How To Improve Credit Scores To Qualify For FHA Loans.

What Is Minimum Credit Score Requirement For 3.5% Down Payment FHA Loans?

To qualify for a 3.5% down payment mortgage loan, a mortgage loan borrower needs to have a minimum credit score of 580 FICO.

  • For more lenient debt to income ratio restrictions and better mortgage rates, an individual needs to have credit scores over 620 FICO
  • There is debt to income ratio caps on borrowers under 620 FICO Versus Over 620 FICO
  • Borrowers with under 620 credit scores, debt to income ratio caps are at 43% DTI

Borrowers with over 620 credit scores, the maximum front end DTI is 46.9% and back end DTI is 56,9% to get an approve/eligible per Automated Underwriting System.

Planning Ahead To Improve Credit Scores To Qualify For FHA Loans

How to plan for the future to improve credit performance to qualify for FHA loans

Folks who plan on buying a home in the future should start to Improve Credit Scores To Qualify For FHA Loans. Just merely qualifying for FHA Loans should not be enough. Higher credit scores mean lower mortgage interest rates.

What should I do if my credit scores are low?

Mortgage Applicants with low credit scores should do the try to Improve Credit Scores To Qualify For FHA Loans.  Although mortgage applicants will qualify for FHA Loans with 580 FICO, the chances are that mortgage rates will be higher than if the borrower had higher than 620 FICO.

  • The mortgage process starts when a mortgage applicant completes the official mortgage loan application (1003)
  • The Loan Officer will pull credit and review mortgage application
  • Loan Officer will go over the loan program with the borrower
  • If borrower credit scores are 615 FICO and loan officer feels that it can be boosted to 620 FICO or higher by paying down credit cards, the LO will give that option
  • Credit scores can easily be increased by paying down credit cards, adding positive credit, or disputing medical collections
  • 620 FICO or higher credit scores will greatly improve mortgage rates than under 620 FICO
  • it might be wise to wait to purchase a home until the borrower can increase credit scores
  • 620 FICO is a key credit score cutoff number
  • For example, pricing on mortgage rates under 620 can be 4.75% where over 620 can be 4.25%
  • There are many tools such as the FICO Simulator where it will state potential credit score improvements
  • Most mortgage brokers know how to boost credit scores
  • It might be paying down credit card balances or getting one or two secured credit cards
  • For those of you who have credit scores at a borderline level like the 615 FICO score we used with the above example and are in a rush to purchase and close on their home, they might just have to settle with the higher mortgage rates and less favorable mortgage terms:
    • They can refinance later after they close on their home and credit improves

Mortgage Applicants who need to qualify with a lender with no overlays, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at [email protected] We are available 7 days a week, evenings, and weekends.

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