March 2, 2017
What are the FHA loan program’s FICO score requirements? That’s a common question, and a good one to ask as there are several things to keep in mind about how the FHA and participating lenders will view your credit scores.
FHA loan rules say that borrowers with FICO scores between 500 and 579 are technically eligible for FHA mortgages (more on that in a moment) but a higher down payment (10%) is required. For borrowers with FICO scores of 580 or higher on their credit report, maximum financing is allowed with a required down payment of only 3.5%.
These are simply FHA loan program minimum standards. Your lender may require higher FICO scores, and typically scores in the mid-600s tend to have a better chance to qualify for loan approval.
When it comes to checking FICO scores, FHA loan rules in HUD 4000.1 have the following instructions for the lender:
“The Minimum Decision Credit Score (MDCS) refers to the credit score reported on the Borrowers credit report when all reported scores are the same. Where three differing scores are reported, the middle score is the MDCS. Where two differing scores are reported, the MDCS is the lowest score. Where only one score is reported, that score is the MDCS.”
HUD 4000.1 adds that each borrower obligated on the FHA loan must have a minimum decision credit score. “Where the Mortgage involves multiple Borrowers, the Mortgagee must determine the MDCS for each Borrower, and then select the lowest MDCS for all Borrowers.”
Furthermore, “Where the Mortgage involves multiple Borrowers and one or more of the Borrowers do not have a credit score (non-traditional or insufficient credit), the Mortgagee must select the lowest MDCS of the Borrower(s) with credit score(s).”
It’s easy to assume that FICO scores are the only standards used to approve or deny an FHA mortgage, but that is not true. HUD 4000.1 charges the lender with a more big-picture approach to deciding whether to approve or deny a loan application. “When underwriting a Mortgage, the Mortgagee must determine the Borrowers creditworthiness, capacity to repay, and available capital to support the Mortgage. The Mortgagee must also examine the Property to ensure it provides sufficient collateral for the Mortgage.
As you can see from the above, FICO scores, while an important part of the big picture, are not the only influences on the lender at loan approval time.
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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