How To Improve Credit Scores To Qualify For FHA Loans

This BLOG On How To Improve Credit Scores To Qualify For FHA Loans Was UPDATED On July 2017

All mortgage 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 borrower who do not meet minimum credit score requirements.

  • Credit scores is what decides whether a mortgage loan borrower qualifies 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 even though HUD Guidelines On Credit Score Requirements is 580 FICO.
  • Reason many lenders have higher credit score requirements is because they can have their own lender overlays.
  • Lender Overlays are mortgage requirements that each individual mortgage 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 a mortgage lender with no lender overlays. 
  • Every mortgage banker can have their own minimum credit score requirement.
  • Portfolio lenders can have minimum credit score requirements.
  • Condotel mortgage wholesale lenders has a minimum credit score requirement of 680. 
  • FHA 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.

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 are 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

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 means 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 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 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 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 and 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 The Gustan Cho Team at 1-800-900-8569 or email us at gcho@gustancho.com. We are available 7 days a week, evenings, and weekends.

Related> Home Loan With Bad Credit

Related> Home Loans And Credit

Related> Why Do Lenders Have Different Requirement On Credit Scores?

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.

Comments are closed.