The minimum credit score for a home loan is 500, however, it's possible to get a mortgage loan with no credit score at all. FHA loans require no credit score; and, VA loans, USDA loans, and conventional loans each require a minimum credit score of 620. Exceptions can be made to minimum credit score policies for borrowers with reasonable cause.
It's getting easier for borrowers to get an FHA-backed home loan.
Major lenders will now approve FHA mortgage applications for borrowers with FICO scores of 580. It marks a 60-point improvement over 2014, when FHA lenders required 640 FICO scores or better to get approved.
The news comes at a time when FHA loans are in demand.
The program's 3.5% downpayment minimum is among the most lenient for today's home buyers; and underwriting requirements on an FHA loan are flexible and forgiving.
FHA loans account for close to one-quarter of all loans closed today.Click to see today's rates (Oct 27th, 2016)
FHA loans are an important component of the U.S. housing and mortgage market.
FHA loans are loans which are insured by the Federal Housing Administration and made available to U.S. buyers and existing homeowners.
The FHA was formed in 1934 and it exists to provide affordable housing to Americans. Today, it's the largest insurer of mortgage loans worldwide.
The Federal Housing Administration doesn't actually make loans. Rather, it insures loans made by the nation's banks, providing protection against default and loss.
In order to gain the FHA's protection, lenders must only make sure that the loan in question meets the lending standards as set forth by the FHA.
The FHA's rule book is known as the "FHA guidelines" and it describes all allowable loan traits, as well as the going terms of an Federal Housing Administration-backed loan.
For example, FHA guidelines state that home buyers must make a minimum downpayment of 3.5 percent against a home's purchase price; and that buyers can be cleared to buy a home 12 months after a bankruptcy, short sale, or foreclosure.
Guidelines also place limits on the size of an FHA-backed loan, which varies by county.
FHA loan limits range from $271,200 for a single-family home to $1,202,925 for a 4-unit home.
FHA mortgage guidelines define which loans the Federal Housing Administration will, and will not, insure. However, U.S. lenders don't underwrite loans to the FHA guidelines as they're written, to the letter.
Lenders impose additional restrictions known as investor overlays which make it harder for an applicant to qualified for an FHA-backed loan.
One such overlay is linked to the FHA Streamline Refinance.
According to the official FHA guidelines, with an FHA Streamline Refinance, lenders are not required to verify income, employment or credit scores. Yet, many lenders choose to verify regardless.
This is because the FHA penalizes banks for making too many "bad loans" and verifications can cut down on defaults.
Another important overlay is linked to your credit score.
The FHA rules state that it will insure home loans for which the borrower has a credit score of 500 or higher. Banks, however, are reluctant to make such loans.
Buyers with credit scores of 500 are highly likely to default in the next 6 months, which would negatively affect a bank's FHA default rate, leading to fines, penalties, and perhaps, termination from the FHA insurance program.
Beginning in late-2011, most banks enforced a minimum credit score for FHA loans of 640. That minimum score has since been lowered.
U.S. home buyers can now get an FHA loan with credit scores of just 580.
Furthermore, with the domestic economy improving and U.S. housing expanding, it's not unexpected that minimum FHA FICOs would drop again soon.
For today's U.S. home buyers, the Federal Housing Administration mortgage is among the most lenient and forgiving mortgage programs available. Find out whether you're FHA-eligible.
Get today's live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.Click to see today's rates (Oct 27th, 2016)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2016 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)