+1 vote
asked Jan 17, 2018 in FHA Loans by peter (210 points)

2 Answers

+1 vote
Hello, Peter, and thank you for your question. It's a good one because there are "official" minimum FICO scores and "real life" minimum FICO scores.

The official version:
1. For a 96.5 percent loan with 3.5 percent down, your representative credit score (the middle of three scores or the lower of two scores) must be at lest 580.
2. For a 90 percent loan with 10 percent down, that minimum drops to 500.

However, most lenders impose higher minimums, and even FHA says that while a low credit score is okay, it's NOT okay if the reason for it is bad financial management. Scores can be low because the applicant has a short or limited credit history, derogatory events in the distant past, or too many accounts, for example. Here's what FHA says in its guide:

"Generally, a borrower is considered to have an acceptable credit history if he/she does not have late housing or installment debt payments, unless there is major derogatory credit on his/her revolving accounts."

The real life version:

Many lenders add "overlays" to official requirements to minimize the possibility of a loan going "sideways," or into default. That often includes a minimum FICO of 620, 640 or even higher.

This article tells you more about "real life" FHA guidelines.

Or simply answer a couple of basic questions and get real quotes from actual lenders.
answered Jan 17, 2018 by GinaPogol (47,650 points)
0 votes
Gina nailed this right on. A large percentage of my borrowers have under 600 credit scores. For 3.5% down payment FHA LOANS minimum credit scores required is 580. Just meeting minimum credit score requirements will not guarantee an automated underwriting system approval. Other credit factors are timely payments for past 12 months. Cannot have federal student loans in default. Late payments after a bankruptcy and foreclosure are not deal killers but are frowned upon by most lenders.

Gustan Cho NMLS 873293
The Gustan Cho Team at USA MORTGAGE
answered Feb 6, 2018 by GustanCho (106,540 points)

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