February 24, 2023
What is the minimum credit score required to get approved for an FHA mortgage loan? Readers ask questions about this issue all the time, sending in questions asking if it is possible to still get an FHA mortgage with a low credit score.
FHA loan rules establish a minimum credit score for loan eligibility but lender standards also apply so this is a harder question to answer than you might think.
What is best in these situations is to know that FHA loan rules are the baseline, the minimum.
The lender’s requirements are also applicable so you will need to discuss what FICO scores qualify.
In general, FHA loan rules in the FHA lender’s handbook say FHA borrowers with credit scores at 580 or higher are eligible for maximum financing for FHA home loans.
That means you would make the lowest down payment–3.5% down. FHA loan rules add that those with credit scores between 579 and 500, 10% down is required as a compensating factor.
And as mentioned above, FICO score numbers are the FHA loan program’s minimum standards. Lender requirements can be higher, and they often are.
Credit score rules for FHA loans include the following instructions for the participating lender–knowing such instructions to the lender can help give borrowers a better idea of what the lender needs to find in your credit report in order to justify approving your home loan.
“The Mortgagee must obtain a credit report for each Borrower who will be obligated on the mortgage Note. The Mortgagee may obtain a joint report for individuals with joint accounts.”
Additionally, the participating lender is required to obtain a credit report “for a non-borrowing spouse who resides in a community property state, or if the subject Property is located in a community property state.”
All borrowers applying for an FHA forward mortgage must have a credit review. All applicants must financially qualify, and you should know the credit deficiencies of one borrower may be a factor in a loan approval decision.
What does your lender need to see when reviewing the credit report?
It’s not just about FICO scores. Your lender will also review the following items in your credit report–all inquiries made within the last 90 Days, plus any credit and legal information not considered obsolete under the Fair Credit Reporting Act (FCRA).
That will include credit information for the last seven years regarding bankruptcies, judgments, lawsuits, foreclosures, tax liens, and other information.
For each borrower’s debt record, the lender will need to see the date the account was opened, the high credit amount, the required payment amount, any unpaid balance, and the overall payment history
When you apply for your FHA mortgage, the participating lender must take a good look at your credit report to look for patterns of behavior that indicate you are a good credit risk.
Your FICO score is definitely an essential measure of your ability to manage your credit, but the lender can’t rely on FICO scores alone to make the determination for loan approval.
Plan on establishing a record of on-time, every time payments for a full year or better ahead of applying for your home loan for best results.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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