November 7, 2014
A reader asks, “I have a question on the down payment assistance and credit scores. We have credit scores that average to 640 and 620. Our lender has asked us to either raise our scores or have a 2 month reserve in addition to our 3.5% down payment as a requirement for FHA/HUD is this standard?”
FHA loan rules do specify a minimum FICO score for borrowers who want to qualify for the lowest down payment of 3.5%. That FICO score is 580. However, lender standards can and often are higher than that number.
FHA loan rules do not prevent the lender from have more strict standards as long as they are applied in compliance with federal law, Fair Housing Act regulations, etc.
Individual borrower circumstances can and often do play a role in the kinds of terms a borrower is offered. FICO scores are only part of the picture. Borrowers who have late or missed payments on their credit report, for example, may represent a greater risk to the lender. Those with bankruptcy or other judgments may also face additional requirements for loan approval.
We aren’t suggesting that any of these things apply to the reader question, only that such factors can and do apply in many cases.
Borrowers are encouraged to shop around for a lender willing to offer the most competitive rates and terms–a borrower who does not feel their FHA loan is being offered at a favorable rate or with favorable terms and conditions is always free to look for another lender when appropriate.
Do you have questions about FHA home loans? Ask us in the comments section. All comments are held for moderation.
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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