FHA Credit Score Guidelines
01 Feb

FHA Credit Score Guidelines

Guidelines For All Borrowers

In the world of home loans and mortgages there is an importance placed on FICO credit score as it can make all the difference in the loan program you are interested in. There are even loan programs from the FHA that have different guidelines depending on the FICO credit score that you have which is why in this article it is imperative that we go over the FHA Credit Score Guidelines and how these guidelines can directly affect how much home you are able to purchase. Even though FHA loans have some of the most lenient guidelines, you are still going to find yourself with a denial if you have not taken care of your recent credit history and items on your credit report .

FICO credit scores are extremely important for all types of borrowing and for potential home owners; the FHA Credit Score Guidelines will give you an idea of where you will need your credit score to be at to proceed with getting your loan approval. The basic FHA Credit Score Guidelines can be seen as:

  • FICO Credit Score 580+ = 3.5% Down Payment Loan
  • FICO Credit Score 500-579 = 10% down payment

As you can see there are options for you as a borrower to obtain a mortgage with a FICO credit score as low as 500. This isn’t to say that with a FICO credit score that low it will be an easy task in getting a mortgage but at least you know that FHA Credit Score Guidelines support a credit profile that looks as such. If you are a potential borrower that falls into the 500-579 FICO credit score category you will see that lenders who will entertain this loan will require compensating factors in order to have the potential for a loan approval. Compensating factors may mean a substantial amount of cash reserves or even a down payment of 20%+ to demonstrate the seriousness of the borrower. There aren’t published rules stating which compensating factors a lender will require as all lenders can enforce their own requirements. The reasons for lenders having their own additional requirements are due to lender overlays which are in the right of the lenders to try and approve borrowers who fit their credit risk standards. Knowing this, it isn’t uncommon for a potential borrower to get multiple denials even though they may satisfy FHA Credit Score Guidelines.

FHA Credit Score Guidelines Affect DTI Ratio

FHA Credit Score Guidelines don’t just affect down payment requirements for FHA Loans but they will also be factored in determining which debt to income ratio is used for the specific borrower .

  • FICO Credit Score 620+ = 56.9% debt to income ratio
  • FICO Credit Score Under 620 = 43% debt to income ratio

As you can see your FICO credit score goes a long way in determining your purchasing power due to the fact there are guidelines for debt to income ratios which are in conjunction with FHA Credit Score Guidelines. If you are unfortunate to have a lower credit score you will see a reduction in 13.9% in monthly debt which can end up being a significant amount and can put home ownership in jeopardy .

If you are interested in going through your credit report and FICO credit score with a professional, then you need to reach out to Mortgage Scenarios today and get the process started. We are experts in knowing the FHA Credit Score Guidelines and will give our best opinion given your situation.

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