When you are in the market for a new home or new debt of any kind, it is only fitting that you should be aware of your FICO credit score and items on your credit history as these can affect your borrowing opportunities. When you are looking to get approved for a mortgage the first thing I will do after your application is filled out is pull a tri-bureau credit report that will give me the proper FICO credit score and a history showing your current debts and if there are any derogatory items such as collections, charge-offs, and bankruptcies. Once I pull this and go over this with you, we will have options for your mortgage needs and we can talk about different loan programs. Specifically in this article I am going to be looking at FHA Loan Credit Score requirements and how your FICO credit score goes a long way in determining the guidelines you will be required to follow. Unlike a lot of other loans, your FHA Loan Credit Score directly affects your down payment requirements as well as your allowable debt to income or DTI ratio. The higher your FHA Loan Credit Score is calculated at the better your corresponding guidelines as you will see in the following examples.
Now that you know your FHA Loan Credit Score, we can go over the minimum FHA Loan guidelines that you will need to adhere to given where your score falls.
Since FHA Loans have some of the most lenient guidelines for borrowers, it is shown initially when looking at the required down payment for your mortgage. As long as you can provide a 580+ FICO score, your 3.5% down payment should be easily obtainable because if you are looking at a home for $150,000, 3.5% of this is only $5,250. With a lower FICO credit score of 500-579 you would need to produce at least $15,000 for the same home and also have compensating factors. Compensating factors are additional items that strengthen your credit profile such as additional assets.
Debt to Income Ratio:
Your FHA Loan Credit Score will also directly affect your purchasing power by setting the limits for your debt to income ratio. Your debt to income ratio is your monthly gross income divided your monthly debt payments including your proposed mortgage payment. As an example, let’s say you earn $5,000 monthly gross income and you have a 640 FICO credit score, you will be able to have a debt to income ratio of $2,845. Alternatively, if you had a 605 FICO credit score you would only be able to have a $2,150 debt to income ratio. In this example a high FICO credit score will allow you to have an additional $695 of monthly debt which could mean the difference between your dream home and a home you would settle on.
As you have seen your FHA Loan Credit Score has a lot of effects on the guidelines that will apply to your mortgage. Here at Mortgage Scenarios working with Fairway Independent Mortgage Corporation NMLS# 2289 I can work with borrowers of any credit profile as we have loan programs for you, or we will work with you until we can get you approved for a mortgage. We look forward to making your dreams a reality. If you have any questions, please call me directly at 630-465-2656 or fill out your application today.