November 23, 2012
A reader asks, “My husband and I have a credit score of 536. We have 41,000 to put down on a house. Can I get an FHA loan. I applied with a bank but could not.”
This reader question doesn’t specifically ask, but it does imply that the reader might be under one of the most common misconceptions about the FHA loan program–that the FHA itself is responsible for making loans, lending money or otherwise distributing funds.
The FHA does not loan money or disburse funds. Instead, it guarantees the home loans which are issued by a participating lender. The lender is responsible for processing, approving or denying the FHA loan applications it receives.
FHA loan applicants should know that while FHA minimum credit scores at listed at 500 and above, banks and financial institutions are free to require higher FICO scores and often do. In fact, the most standard minimum for many banks is a FICO score of 620 or better.
Borrowers who come to the FHA loan application process knowing they have FICO scores lower than 620 should contact the FHA directly for a referral to a pre-purchase housing counselor who can give advice on how to improve credit scores and the overall chances of loan approval. Don’t waste time or money on third-party agencies offering to “repair your credit” for a fee–instead ask advice of an FHA approved housing counselor on how you can accomplish the same results yourself.
Potential FHA borrowers can contact the FHA directly at 1-800 CALL FHA for more information.
Do you have questions on the FHA home loan process? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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