The Home Buyer's Korner

Information presented should be used for educational purposes only.

November 7th, 2014

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FHA Minimum FICO Score

FICOFHA lenders generally have an absolute minimum FICO score for home buyers who want to qualify for a minimum down payment of 3.5 percent and it’s 580. However, you’ll be hard pressed to find a lender who will offer a minimum down payment with a FICO score this low.

If you do, be ready to work with your loan officer to meet a lot of conditions. These FHA loans are examined in great detail and they take longer to secure a final approval, as they often require a second signature approval by third party lender. 

You can find lenders who offer low FICO home buyers with scores in the mid to high 500 scores, but they normally require a 10 percent down payment and the approval process is a detail one to complete.   

More often than not, lenders want to see a minimum of 620 to 640 and at these FICO scores lenders are likely to require at least two month reserves, in addition to verifying your down payment and closing cost.  And, as each case has a better FICO score; such as one at 660 or higher the lender may not need to document reserves.  

FHA does not prevent lenders from stricter standards or what is otherwise called lender overlays, as long as they are applied in compliance with federal law and the Fair Housing Act regulations, along with any other anti-discrimination acts.

The above said, FHA (unlike a conventional loan) is a circumstances driven type of mortgage.  FICO scores are only part of a bigger picture.

Home buyers who have a pattern of late or missed payments, bankruptcy or other judgments on their credit report normally represent a greater risk to the lender.  However, you stand a better change of loan approval with an FHA loan, provided you have a reasonable explanation; support documents to back up your explanation and can justify a reasonable belief the issues are isolated and unlikely to happen again. 

If you’re serious about purchasing a home and need maximum financing, your best option is to find out what your FICO score is and review your credit report before making a formal application for a mortgage.  Credit reports often have misleading information that can drive down your FICO score.  The time spent trying to get a lender to approve your loan with a 580 FICO could likely had been better used improving your score. Additionally, the lower your FICO score the more likely you’ll pay fractional  discount points and vice versa. 

Many home buyers spend a lot of time and money working with a Credit Repair Company and although they have their place, you might do well to consulting a mortgage lender first.

Mortgage Lenders are happy to take a mini application, pull your credit report and advise where you stand in terms of securing a mortgage and their is no commitment.  Many also have automated credit repair stools where they can submit your credit report and in a matter of minutes provide a report on what actions can be taken to boost your FICO score.  One of them is a software program called CreditXpert.  If you have a low FICO start with your mortgage lender first and ask them if they have access to this or similar FICO review software.   

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