November 4, 2014
A reader asks, “If I only need a fico score of 580 to qualify for a FHA loan, why would my (lender name deleted) agent tell me that I need 600 score before he could preapprove me for a mortgage loan?”
This reader question reveals a common misconception about the FHA single-family home loan program. It is true that the FHA does list a minimum FICO score for borrowers–borrowers who have FICO scores below 580 won’t qualify for the lowest downpayment amount of 3.5% and borrowers with scores below 500 don’t qualify at all.
However, these score requirements are the FHA minimums, not the lender’s standards. Lender FICO scores can and do vary from the FHA loan rules–they can be more strict than the FHA loan rulebook’s own FICO requirements. As long as these stricter credit standards are applied in accordance with the Fair Housing Act and other federal law, lenders are free to require higher scores of FHA loan applicants.
Borrowers who find themselves in need of a higher credit score in order to qualify for an FHA mortgage should contact the FHA directly at 1-800 CALL FHA to request a referral to an FHA/HUD approved housing counselor in the borrower’s local area.
Housing counseling can provide help in understanding the FHA loan process, what lenders need in terms of good credit history, and offer borrowers ways to help improve or even correct credit reports (without paying third parties to do so on the borrower’s behalf).
Credit scores are a very important part of the FHA loan approval process–going into your FHA home loan with the highest credit score you can maintain and a strong loan repayment history behind you (12 months of on-time payments for all bills is strongly recommended) makes you a much better candidate for a home loan.
Do you have questions about FHA loans? Ask us in the comments section.
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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