July 2, 2014
A reader asks, “Would I qualify for and FHA Loan refinance with a credit score of 589 with no credit card debt, and all house payments have been made on time for the last three years? I really need to refinance. Please help!”
FHA loan rules published in HUD 4155.1 state that a borrower with a credit score above 500 is technically eligible for a VA loan, though between the range of 500 and 579 the borrower is not eligible for maximum FHA financing–it’s limited to 90%. That means a 10% down payment is required at a minimum according to FHA regulations for new purchase home loans. For refinance loans, the implications are different–speak to your loan officer about what might apply in terms of an FHA cash-out refinance.
The rules in HUD 4155.1 in this area are minimum standards–a lender is free to require a higher standard for FICO scores according to the rules of that particular financial institution. So it’s impossible to say whether the reader would actually be able to qualify.
Only the lender can say for sure if the borrower qualifies based on the financial information submitted by the applicant. FICO scores, loan repayment history and other factors are a major part of FHA home loan approval. So is the debt to income ratio, which plays a big part in whether or not the lender thinks you’re an acceptable credit risk.
Refinance loans can be tricky though–in spite of everything just mentioned, there is one type of FHA refinance loan that has no FHA required credit check or appraisal. The FHA Streamline Refinance is one option for borrowers who need a lower mortgage payment. If the lender chooses not to require a new credit check AND the borrower has an existing FHA mortgage, the FHA Streamline program would be a good option for the reader and others who find themselves in such a position.
Discuss your needs with a loan officer to learn more about your options under the FHA Streamline Refinance loan program. These types of refinance loans do not feature cash back to the borrower but are required to provide a tangible benefit to the borrower.
Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting pre-approved for an FHA loan at FHA.com, a private company and not a government website.
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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