May 1, 2019
How low can your credit score go before you are not eligible for an FHA home loan? Borrowers get confused on this point but there is an easy way to remember what it takes to qualify for an FHA mortgage when it comes to the FICO score numbers.
There are two requirements-that is what confuses many first-time home buyers. They hear that FHA home loan rules say one thing, and assume that is the final word on the matter. But it’s not.
FHA loan rules state that borrowers with credit scores starting at 500 or better are technically eligible for an FHA home loan.
Those with FICO scores between 500 and 579 are required by the FHA to make a 10% down payment. Those with FICO scores at 580 or higher make a 3.5% down payment-a substantial difference.
That is the FIRST standard.
The SECOND standard for getting an FHA home loan approved is the lender’s requirements. Your FICO score may technically fall into the zone for loan approval, but the lender’s own FICO score standards may be more strict.
This is what is known among industry professionals as a “lender overlay”. At least one popular housing finance blog has referred to this as “layering”, but whatever you call it, the end result is the same-the FHA’s standards and the lender’s often more strict requirements above and beyond that FHA minimum.
How To Raise Your Credit Scores So You Can Qualify For An FHA Mortgage
First-time home buyers should consider working on their credit long before applying for a home loan-at least a year in advance to establish a record of on-time payments. Coming to the FHA loan application with anything less than one year of no late or missed payments on ALL financial obligations could jeopardize your loan approval chances.
You do not need to pay third parties to work on your credit score for you-you can do all your own credit repair work by paying on time, examining your credit record for evidence of identity theft, and very importantly working on your debt ratio-lower it as much as possible.
Don’t carry balances on your credit accounts that are close to the limit. Cut your credit card balances down as much as possible and avoid closing old accounts-the age of your credit is important.
Working on your credit scores means reducing your debt, paying on time, and avoiding new lines of credit leading up to your home loan application. This takes self-discipline, but home loan approval is definitely worth the effort.
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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