December 8, 2014
A reader asks, “We were living in Florida when the housing market crashed. I was in school and my husband was working. 2 mos after starting school my husband lost his job so we had no other option then to file bankruptcy and we tried 9 times to get our mortgage modified with [lender name deleted] and they NEVER helped us! after eight mos of trying to get a modification, we were served foreclosure papers. Our Bankruptcy was discharged July 2010 and our Foreclosure was Dec 2010…”
“My credit score is 593 and my husbands is 585. There have been a couple CC payments that have been late but other than that we managed to pay everything on time, including our rent. Will we be able to qualify for Loan…Please is there any way we can qualify for a loan. We always had great credit and always paid our bills until we moved to Florida and hit rock bottom! It has been a very hard road trying to come back and then my husband got hurt and now is disabled and can not work. Ive tried to contact lenders and everyone seems to be too quick to not even talk to us because we don’t have a 620 credit score.”
There are several issues at work here, but let’s begin with two of the most important. While it’s true that FHA loan rules specify a baseline FICO score requirement that the lender have 500 or above to qualify, FHA lenders do not have to accept a FICO score that low. In fact, borrowers will find, as the reader question suggests, that lenders generally require a 620 FICO score or higher to qualify for the loan.
Those who do find lenders willing to work with a lower credit score will find a higher down payment is required as a compensating factor–that’s an important factor to keep in mind.
The reader questions also mentions late payments. Borrowers should not approach a participating FHA lender intending to apply for the mortgage or credit-check required refinance loan without at least 12 months of on time payments for all financial obligations. Anything less could jeopardize your chances of loan approval unless the lender specifies otherwise.
The best thing to do under the circumstances mentioned in the reader question is to call the FHA at 1-800 CALL FHA and request a referral to a local, HUD/FHA-approved housing counselor who may be able to offer advice on how to prepare for a loan in the future. Issues like the ones mentioned in the reader question can be dealt with, but borrowers and potential borrowers should get some help from experts on how to come to the loan transaction as prepared as possible.
Do you have questions about FHA loans or refinance 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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