May 1, 2023
How important is my credit score for an FHA home loan? It’s a question many ask, and it’s important to ask as early in the planning stages of your new home loan as possible. What do you need to know about credit scores and home loan approval?
Credit Score Requirements Vary Depending On The Lender
You will find that some lenders require certain credit score ranges while others have different standards.
That’s a given-no two lenders are exactly the same. But did you know that even within a single financial institution there may be varying credit score requirements depending on the type of loan you seek?
For example, FHA One-Time Close construction loans may require a different minimum credit score than an existing construction home loan.
There are several reasons for this, including the added expense of having a home built rather than purchasing one that is already completed. That added expense equals more risk for the lender, so standards will be higher.
Credit Score Requirements And Patterns Of Financial Reliability
Your actual credit score number only tells part of the story. Your loan officer won’t just look at your numbers.
The FHA lender also reviews your credit reports for signs of reliable payments, indications that the applicant is a responsible credit user, and that there are not an excessive amount of open accounts that might affect your debt-to-income ratio.
Your payment record can be just as important as the FICO score numbers; don’t neglect your payments or allow your payment history to become clouded with late payments or missed payments.
The lender will definitely take note, especially to your payment history in the 12 months leading up to the loan application.
Credit Scores Are Just One Indicator
If you have good credit, but a high amount of debt compared to your monthly income, your chances at loan approval could be diminished just the same as if you had a lower score.
View your personal finances like a pyramid with FICO scores, loan repayment history, and your debt-to-income ratio as the three sides of that pyramid. Do your best to maintain all three for maximum results.
Compensating Factors
Some borrowers get approved for FHA home loans even with lower scores or other credit issues IF they have what the FHA loan rulebook describes as compensating factors.
Those factors, such as a bigger down payment or a large amount of cash in reserve that could be used to make mortgage payments are definitely in the borrower’s favor.
Don’t assume that you can’t qualify for an FHA mortgage loan until you and your lender have discussed your situation in detail to see what may be possible. Talk to a participating loan officer today.
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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