ALERT: Minimum FHA Credit Score Requirement Falls 60 Points
Minimum FHA Credit Score For A Home Loan
The minimum FHA credit score for a home loan is 500, however, it is possible to get a mortgage loan with no credit score at all. FHA Credit Score Requirements Falls 60 Points. NSH Mortgage has the wisdom and tools to help you understand the new FHA credit score requirements.
Lenders can check non-traditional credit sources and build a credit report if you do not have enough accounts to generate a score. VA home loans require no minimum credit score, FHA minimums range from 500 to 580, USDA loans have a FICO floor of 640, and conforming loans require a minimum credit score of 620. Exceptions can be made to minimum credit score policies for borrowers with reasonable cause.
FHA Credit Score Requirement Drops 60 Points
It is getting easier for borrowers to get a FHA backed home loan. Major lenders will now approve 96.5 percent FHA mortgage applications for borrowers with FICO scores of 580. It marks a 60 point improvement over a few years ago, when FHA lenders required 640 FICO scores or better to get approved.
The news comes when FHA loans are in demand. The program’s 3.5% down payment minimum is among the most lenient for today’s home buyers; and underwriting requirements on a FHA loan are flexible and forgiving. FHA loans account for close to one-quarter of all loans closed today.
Minimum Credit Score To Get A FHA Loan
There are two minimum score levels for FHA, depending on down payment level.
- 580 with 3.5% down
- 500 with 10% down
Some potential buyers have credit issues from their past. With a clean recent history, though, these buyers might achieve mortgage approval despite low scores. This is especially true after extenuating circumstances.
These are events outside the applicant’s control. Sometimes, a lender can look past a layoff, one time medical event, or another isolated financial shock that wrecked your credit. A low credit score is not always reflective of the applicant’s credit-worthiness. In these cases, lenders can push through an approval for someone with a low credit score.
Keep in mind, though, that lenders may impose higher minimum scores than FHA itself, sometimes as high as 620 to 640.
FHA Loans With No FHA Credit Score
FHA loans are even available to those who have no traditional credit history, that is those who have paid cash for everything and have never opened a credit card, auto loan, or mortgage. According to FHA, lenders must not automatically deny applicants with no credit. Rather, it should gather history for credit like accounts: utilities, cell phone bills, insurance payments, and even childcare expenses.
Lenders can approve a loan built on non-traditional credit. A mortgage can be the applicant’s first ever real credit account.
Getting A FHA Mortgage After Bankruptcy
Different rules apply according to what type of bankruptcy you went through. Here is the standard waiting periods for Chapter Seven bankruptcies:
- FHA loans: Two Years
- VA home loans: Two Years
- Conventional mortgages: Four Years
- USDA home loans: Three Years
FHA Loan After A Foreclosure
A foreclosure can certainly drag down your credit score. Fortunately, agencies tell lenders it is okay to lend to an applicant after a foreclosure, provided enough time has passed.
- FHA loans: Three years
- VA home loans: Two years
- Conventional mortgages: Seven years
- USDA home loans: Three years
Waiting periods are reduced if the event was caused by circumstances beyond the borrower’s control.
Minimum Credit Score For A Mortgage: FHA, VA, Conventional, USDA
FHA might not be your only choice if you have a lower credit score. It is often the best option, but not the only one, especially if you are buying in a non-urban area or have served in the military.
FHA Home Loan: A minimum 580 score is required for FHA applicants with a 3.5% down payment. If you have 10% down, you can get approved with a score down to 500. Keep in mind that some lenders will impose higher minimums.
Conventional loans: These are backed by Fannie Mae and Freddie Mac and offered by most lenders in the country. A 620 minimum score is required, with some lenders requiring as high as 620-640 for conventional financing. For those with a small down payment, FHA loan is usually more cost effective.
USDA Loans: A 640 score is required for a streamlined approval on a USDA loan. Lenders may approve lower credit scores, but documentation requirements are heavier. The USDA mortgage is available in certain geographical areas around the U.S.
Can I Buy A Home With Low Credit?
Lenders often look at the complete story, not just the credit score. This can work for or against you. Here are two situations that might play out in real life.
Scenario 1: An applicant had a bankruptcy 18 months ago. He has a 660 credit score, high enough for a FHA loan. But, his waiting period is not up. He will not be approved.
Scenario 2: An applicant has a 580 credit score due to an one time medical emergency which resulted in unpaid bills and a job loss. She had perfect credit and steady employment before and after the event. She could be approved. The score is not reflective of her true credit-worthiness.
These situations play out every day across the country. Just because you have a low score does not mean you cannot be approved for a FHA loan or any other mortgage type.
FHA Loans Allow 3.5% Down Payment
FHA loans are an important component of the U.S. housing and mortgage market. They are insured by the Federal Housing Administration and made available to U.S. buyers and existing homeowners. The agency was formed in 1934 and it exists to provide affordable housing to Americans. Today, it is the largest insurer of mortgage loans worldwide.
The Federal Housing Administration does not actually make loans. Rather, it insures loans made by the national banks are providing protection against defaults and loss. 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 a Federal Housing Administration backed loan. For example, FHA guidelines states that home-buyers must make a minimum down payment 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 a FHA backed loan, which varies by county. In addition, FHA loan limits range from $275,665 for a single family home to $1,223,475 for a four unit home.