March 9, 2015
A reader asks, “My husband and I are wanting to buy our 1st home this year! I have a credit score of 736 while my husbands is currently 621. We are working on his a lot. I’ve read that people have been approved for FHA at a 580 score. Can this really happen and is there a way to know which lenders would approve with a lower credit score? We already have a $15,000 down payment.“
Potential FHA borrowers should know that the FHA minimum FICO score for maximum financing is 580. However, this does not take into consideration what a lender might require; the lender is free to require a higher FICO score.
Lender standards vary and a borrower will need to research the lender offering the most competitive rates and terms.
In cases where a borrower is considered to have a “marginal” credit score, a larger down payment can be considered as a compensating factor–a borrower who brings more than the minimum 3.5% or one who has substantial cash reserves or investments might get added consideration from the lender based on FHA loan rules permitting it.
Lender standards, again, would play a role here. How much additional down payment would be considered a compensating factor at a given lender? That would be up to that financial institution.
Basically, the borrower will need to research participating FHA lenders to find one willing to work with them with the most advantageous rates/terms. Potential borrowers can get FICO score advice and pre-purchase counseling that can help in these situations by calling the FHA at 1-800 CALL FHA and requesting a referral to an FHA/HUD approved housing counselor in the borrower’s local area.
Do you have questions about FHA home loans? 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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