December 17, 2015
When you apply for a mortgage loan to purchase a home, your lender will require you to sign paperwork authorizing your loan officer to run a credit check on all parties to be obligated on the mortgage. FHA loan rules in HUD 4000.1 spell out the minimum FICO score standards and requirements. Do you know what the minimum FHA loan standard is for FICO scores?
According to HUD 4000.1, the lender must analyze FICO scores in a specific way. Many borrowers wonder how, if the lender is getting multiple credit reports from the three major credit reporting agencies (Equifax, TransUnion, and Experian), will the lender interpret differences between those scores?
HUD 4000.1 states:
“The Minimum Decision Credit Score (MDCS) refers to the credit score reported on the Borrowers credit report when all reported scores are the same. Where three differing scores are reported, the middle score is the MDCS. Where two differing scores are reported, the MDCS is the lowest score. Where only one score is reported, that score is the MDCS.”
The lender must acquire scores for all parties applying for the loan. “An MDCS is determined for each Borrower. Where the Mortgage involves multiple Borrowers, the Mortgagee must determine the MDCS for each Borrower, and then select the lowest MDCS for all Borrowers.”
Some applicants may begin the FHA loan application process without a traditional credit score. In situations like these, which often feature more than one borrower on the mortgage, FHA loan rules have the following requirement:
“Where the Mortgage involves multiple Borrowers and one or more of the Borrowers do not have a credit score (non-traditional or insufficient credit), the Mortgagee must select the lowest MDCS of the Borrower(s) with credit score(s).”
Of the minimum FICO score possible under FHA loan rules, HUD 4000.1 instructs the lender that 500 is the very lowest score an applicant may have and still be eligible for some type of FHA home loan. But one thing that’s important to know–this minimum score is not necessarily the lender’s standard FICO requirement. Your lender may have rules that require a higher FICO score, and this is permitted under FHA loan rules. The higher standard must be applied in accordance with federal law.
If you are concerned that your FICO score isn’t high enough to get FHA loan approval, discuss your situation with a loan officer to see what may be possible. You can also contact the FHA directly at 1-800 CALL FHA to request a referral to a local HUD-approved housing counselor who may be able to assist you with pre-purchase advice.
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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