April 6, 2015
A reader asks, “Would like to buy a home.. My current scores are 607 Experian, 579 TU, 554 EQ. Wifes scores are mid 500′s. Which score would be looked at.. I just paid off some collections so my score is not updated if its going to change. Should I wait another year before I apply or go for it. Would we have to put 3.5% down our salary is about 85k a year. Looking for a home in the range of 180k, also due to our low scores would we have a high rate?”
The rules for FHA loan FICO score review are found in HUD 4155.1. Chapter Four, Section A is where you will find a heading titled, “Definition of Minimum Decision Credit Score”. The lender is instructed:
“If a credit score is available, it must be used to determine the decision credit score for the application and for eligibility for FHA-insured mortgage financing. A “decision credit score” is determined for each applicant according to the following rule: when three scores are available (one from each repository), the median (middle) value is used; when only two are available, the lesser of the two is chosen; when only one is available that score is used.”
So in the case of the reader question the 579 score would be used based on the reading of FHA loan rules as mentioned above.
FHA loan rules say that borrowers with a FICO score of 580 or above are eligible for maximum financing. In cases where the FICO score is below 580, a larger down payment is required than the minimum 3.5% needed for borrowers with FICO scores at 580 or above.
Lower FICO scores can, depending on the lender and other factors, result in a different interest rate offered than if the borrower had more competitive FICO scores.
Yes, a higher FICO score can result in the lender offering you a better FHA mortgage loan rate depending on the lender and other factors. Not all lenders offer the same FHA loan mortgage interest rates, and not all lenders offer the same rates for the same FICO scores–your experience may vary.
Do you have questions about FHA home 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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