September 17, 2015
We get many questions about the difference between FHA loan minimum FICO score and credit requirements and the lender requirements for same. Here’s one of the latest examples:
“Seems like there is a lot of contradiction between what is on the FHA site and what the FHA Reps. are answering the consumers the questions. Why have FHA guidelines if the lenders dont have to follow them and can overrule them with their own? I have a credit score of 580 and a one time 30 day late mortgage payment in the past 12 months…”
There were other details in the reader question, but the information above was the most pertinent. And the answer to the first part of the question is fairly simple.
FHA loan FICO score requirements and other financial qualifications are only minimum guidelines. They are not intended to tell lenders what to do, but rather set the baseline for what is acceptable for FHA loan approval. The lender, under FHA loan rules now found in HUD 4000.1, is free to require higher standards as long as those standards are applied in accordance with federal law.
The second part of the reader’s question–the late payment issue–has an answer some might not like to hear, but for best results it’s highly recommended. Lenders urge potential borrowers to come to the FHA loan or refinance loan application process with nothing less than 12 months of on-time payments for all financial obligations.
That may sound like the lender is asking a great deal in some cases because of economic woes, financial hardship, etc. But a review of many lender standards reveals that “12 month rule” is prominent in the underwriting guidelines of many financial institutions. The lender is required to look for patterns of financial responsibility, and while a single late or missed payment may be excusable, the 12-month rule is your best bet to get closer to loan approval.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It’s designed especially for real estate websites–a widget that displays FHA loan limits for the counties serviced by those websites.
It is easy to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today: http://www.fha.com/fha_loan_limits_widget
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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