July 25, 2016
We get many questions about FHA loan standards for FICO scores and similar issues. Here’s one of the latest:
“I am looking to purchase a mobile home for 25000. I have a 610 credit score and a stable job (been there for 8 years). I want to put down 40% of the loan. Do you think I would have any major issues even with a low credit score?”
Questions like these are a good reminded that plenty of misconceptions about the home loan process exist. Unfortunately one of the prevailing misconceptions is that FICO scores are THE determining factor in home loan approval.
That is not to dismiss the importance of FICO scores. Lender standards require a borrower to have a minimum FICO score (often between 620 and 640 depending on the lender) but once the FICO score part of the equation has been settled, there are other requirements that are just as important.
For example, a borrower’s debt-to-income ratio is a significant part of a lender’s decision to approve or deny a loan. If your monthly debts take up too much of your monthly salary, the lender may decide that the loan isn’t affordable for the borrower.
Another important factor is the borrower’s record of timely payments on financial obligations. In general, you should never come to the home loan application process with anything less than 12 months of on-time payments on all financial obligations. Anything less jeopardizes your chances at loan approval.
The reader’s question includes mention of a higher mortgage down payment. This is what industry professionals can use as a “compensating factor” where other qualifications may be lacking. A lower FICO score may be offset by a higher down payment depending on circumstances.
So the short answer is that the borrower should have a conversation with a loan officer to see what may be possible. Lender standards and requirements vary, so what may be acceptable at one financial institution may not be permitted at another. Talking to a lender to see what is possible is a very good idea in cases like these.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple 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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