FHA Minimum Credit Scores: 2016 FHA Guidelines

FHA Minimum Credit Score Lending Guidelines

Gustan Cho Associates

All mortgage loan programs have minimum credit score requirements.  FHA minimum credit scores depends on the amount of down payment and FHA minimum credit scores will have an impact on debt to income ratios.  HUD announced that 2016 FHA Guidelines with regards to FHA minimum credit scores will remain the same as 2015.  Besides FHA minimum credit scores required, FHA insured mortgage loan applicants also need to meet other qualifying factors such as debt to income ratio minimum requirements, waiting period requirements after bankruptcy and foreclosure, verification of rent requirements if mandated by automated underwriting system, and other factors requested by the automated findings or by the mortgage underwriter if it is a manual underwrite.

620 FICO Credit Scores

If the FHA insured mortgage loan applicant has credit scores of at least 620 FICO or higher, the mortgage loan applicant will qualify for a 3.5% down payment FHA loan and have a front end debt to income ratio as high as 46.9% and back end debt to income ratio as high as 56.9%.  100% gift funds are allowed for mortgage loan applicants with credit scores higher than 620 FICO.  Verification of rent is normally not required for mortgage loan applicants with credit scores higher than 620 FICO credit score.

Credit Scores Between 580 FICO And 620 FICO

FHA minimum credit scores to qualify for a FHA insured mortgage loan with 3.5% down payment is 580 FICO minimum.  Any FHA mortgage loan applicant whose credit scores are under 580 FICO, FHA requires a 10% down payment.  If your credit scores fall between 580 FICO and 619 FICO credit scores, the minimum down payment required is 3.5% down payment for a home purchase.  However, a major disadvantage of having credit scores under 620 FICO is that the debt to ratio cap drops significantly.  If your credit scores fall between 580 FICO and 579 FICO, the maximum front end debt to income ratio allowed is 31% and maximum back end debt to income ratios allowed is 43%.  Many mortgage lenders may require verification of rent for mortgage loan applicants with credit scores under 620 FICO even though the automated findings may not request it.  Although FHA allows up to 100% gifted funds for the down payment, many mortgage lenders may require that gift funds are not allowed and that the borrower’s own funds are permitted for the down payment.  Some mortgage lenders may require three months reserves which are three months worth of principal, interest, taxes, and insurance, also referred to as PITI.  Many mortgage lenders may require verification of rent for mortgage loan applicants with credit scores between 580 FICO and 620 FICO. So if you’re looking to purchase a house in 2016 or 2017 you know exactly what needs to be done and how much money you need in those years.

Credit Scores Under 580 FICO

FHA minimum credit scores to qualify for FHA loan is 500 FICO.  However, as mentioned earlier, if your credit scores fall below 580 FICO, a 10% minimum down payment is required.  Just coming up with the 10% down payment is not the only requirement.  Mortgage lenders are extremely careful when underwriting mortgage loan applicants with credit scores under 580 FICO.  Your mortgage rate will definitely be much higher.  Rental verification will be required because of the payment shock issue.  Payment shock is the percentage of what the renter is currently paying compared to the new principal, interest, taxes, and insurance payment.  For example, if your current rent is $1,000 per month and your new proposed mortgage payment will be $1,100 per month, the payment shock is only 10% which is great and the new homeowner will have no problem adjusting to the new proposed housing payment.  Rental verification from a private landlord can only be used by providing 12 months canceled checks.  Rental verification from a property management company can be used by the property manager of the housing complex to write a letter stating the tenant has been timely on his or her rental payments for the past 12 months.

Lender Overlays From FHA Lenders

The above FHA minimum credit scores to qualify for FHA Loan are those implemented by the Federal Housing Administration, FHA.  However, FHA mortgage lenders may have their own FHA mortgage lending overlays which surpass the minimum mandated by FHA.  For example, even though the minimum credit score to qualify for FHA Loan required for a 3.5% down payment FHA loan required is 580 FICO credit scores, many banks, credit unions, and mortgage bankers may not accept any FHA mortgage loan applicants who do not have a 640 FICO credit score.  These banks, credit unions, and mortgage companies with credit score overlays tell these potential home buyers that they do not qualify.  If you are one of these home buyers who are told you do not qualify due to not meeting the 640 FICO score, no worries.  Contact me at 262-716-8151 or at www.gustancho.com.  I am a no mortgage lender overlay lender and just go off the minimum HUD lending guidelines and have no overlays. Minimum credit scores to qualify for FHA Loan is 580 FICO.

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Related> Can I get mortgage with 580 FICO credit score?

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.

6 Comments

  1. Carrie duncan says:

    Are u an actual lender. Also to do the 203k loans do u have to have a higher credit score.

  2. Amy Hagler says:

    How long does it typically take you to get a clearance to close from the day you get the file on an FHA loan that has already been approved in automated underwriting with credit above 640 and solid employment for 10 years along with good DTI ratios? Are you a broker and who does the underwriting and owns the loan?

    • Gustan Cho says:

      From the day we get the signed mortgage docs, it should take no later than 30 days to fund and close the loan. We can close it earlier if we put a rush on the appraisal. Appraisal normally takes a week to order and get back the report. We are mortgage bankers with no lender overlays and fund our own loans and do not broker any files out. Please contact me at 262-716-8151 or email me at gcho@gustancho.com if you have any questions.

      Gustan Cho NMLS 873293

  3. T Elise says:

    Wanting to buy a house before 2015 ends, Already have a house in mind, however been working on my credit that past 5 months from where it was before, but still under 580. Is there anyway you can help me?

    • Gustan Cho says:

      Under FHA Guidelines, you need a 580 FICO credit score to qualify for a 3.5% down payment home purchase loan. If you can get a few secured credit cards, that can boost your credit scores or if you can add yourself as authorized user to a family member’s credit card account, that should do the trick. The person you are adding your name to needs to have perfect payment history on their credit card payment history and a very low credit card balance in order for it to work. Feel free to contact me or email me.

      Gustan Cho
      GLCProperties@aol.com
      262-716-8151