FICO Scores and FHA Lender Requirements
“If I only need a fico score of 580 to qualify for a FHA loan, why would my lender tell me I need a FICO score of 600 I can get pre-approved for a mortgage loan?”
This type of question addresses a common misconception about the FHA single-family home loan program--that there is a single FICO score standard for all borrowers. Is this true?
The FHA does have a section in the rulebook that lists a minimum FICO score for borrowers. In general, if your FICO score is below 580, you won’t qualify for the lowest downpayment amount of 3.5%. FHA loan applicants with scores below 500 don’t qualify at all. Those are FHA standards and NOT lender standards, an important distinction to make.
The FICO score requirements mentioned above are the FHA minimums ONLY, and lender FICO scores can vary from the FHA loan rules. The lender is permitted to rqeuire higher standards than the FHA loan rulebook’s own FICO requirements.
There is a caveat there--these higher credit standards must be applied in accordance with the Fair Housing Act and other federal law, lenders are free to require higher scores of FHA loan applicants.
Some are told by the lender or a pre-purchase counselor that the applicant needs a higher credit score in order to qualify for an FHA mortgage. If that applies to you, one important move to make is to contact the FHA directly at 1-800 CALL FHA. Call them to request a referral to an FHA/HUD approved housing counselor in your area.
Housing counseling from a HUD approved agency is a very good source of help and advice--a trained counselor will offer you help in understanding the FHA loan process, what lenders need in terms of good credit history, and offer borrowers ways to help improve or even correct credit reports (without paying third parties to do so on the borrower’s behalf).
FICO scores are a big part of the FHA loan approval process–going into your FHA home loan with the highest credit score you can maintain and a strong loan repayment history behind you (12 months of on-time payments for all bills is strongly recommended) makes you a much better candidate for a home loan. If you aren’t sure how to raise your credit score or improve your credit worthiness, contact the FHA for a referral to get help.
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