September 14, 2011
There are plenty of FHA rules governing how a loan applicant’s credit data must be reviewed and processed to determine if he or she is a good risk for an FHA loan.
One of the first things covered by the rules is how credit scores are to be used in the process.
“When a credit score is available, it must be used to determine eligibility for FHA insured financing,” according to the FHA official site. But how does the FHA view the actual score numbers? The answer to that question is a bit tricky because of changes to the FHA loan rules.
Let’s examine FHA insured loans for new purchase transactions with case numbers assigned on or after October 4, 2010. A “new purchase” FHA loan is typical for situations where the borrower wants to buy a home with an FHA guaranteed mortgage.
For FHA loan case numbers assigned on or after 10/04/2010, borrowers with a decision credit score of 580 or above are eligible for the maximum amount of FHA financing available, based on a variety of factors including the price of the property and the local FHA loan limit.
For borrowers with credit scores between 500-579, the maximum FHA loan is 90 percent LTV, which means the borrower pay the remaining ten percent of the price of the home out of pocket.
The FHA says that decision credit scores of 499 and below mean the borrower is not eligible for FHA insured financing. But for FHA loans with case numbers assigned on or before October 3, 2010, the FHA credit score rules state:
“When the decision credit score is:
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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