May 30, 2013
When applying for an FHA home loan, many borrowers are in the dark about credit score requirements and other issues related to FICO scores in general. We recently answered a reader question about FHA loan credit requirements and now is a good time to review FHA policy on FICO scores.
The FHA requires the lender to use an available credit score to determine whether or not the borrower is eligible for an FHA home loan. The FHA has rules for interpreting or using FICO scores from credit reports. According to the FHA Frequently Asked Questions list on the official site:
“When the credit report reflects:
• 3 credit scores (one from each repository) – the middle score is used
• 2 credit scores – the lower of the two scores is used
• 1 credit score – that score is used”
It’s easy to see that borrowers who want to know if they qualify for an FHA loan should begin their journey by examining the lowest credit score on their report and working from there. But what about situations where there is more than one FHA loan applicant on the loan? According to the FHA:
“If there is more than one borrower, the lender must:
1. Determine the decision credit score for each borrower
2. Select the lower score (or lowest score if more than two borrowers).”
Again, the lower score comes into play.
In situations where the is a lack of credit or non-traditional credit, FHA loan rules have this to say:
“Borrowers with non-traditional credit (or insufficient credit) must qualify based on the guidance in Handbook 4155.1 4.C.3 If TOTAL renders an “accept/approve” risk classification, it can be relied on (subject to correct data) EXCEPT when none of the owner-occupants has a credit score. In such cases, the loan must be underwritten using the insufficient credit underwriting guidance.”
If you feel your FICO scores are too low, an FHA referred housing counselor may be able to advise you. Contact the FHA at 1-800 CALL FHA and ask for a referral to a government-approved housing counselor in your area.
Do you have questions about FHA mortgages? 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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