FHA Mortgages

Credit score Scores For An FHA House Mortgage: When Low Credit score Is Not Unhealthy Credit score


Worried About Your Credit Score For An FHA Home Loan? When does a low credit score reflect bad credit history?

The FHA home loan rules state that the lender must ensure a borrower has at least a 500 FICO score to qualify for an FHA mortgage, but your credit score numbers don’t tell the full story.

It is true that the FHA loan rules minimum requirements for FICO scores do not always reflect the participating lender’s credit score requirements; Borrowers are technically eligible for an FHA mortgage with the lowest possible down payment when applying with FICO scores of 580 or higher. The lender may require a credit score of 620 or higher for the same applicants.

But your FICO results are only part of the picture the lender tries to see when they review your application. A borrower with a low FICO score may not always get these low scores due to financial mismanagement, late payments, or other issues.

Sometimes the borrower in the FICO score department suffers from underutilization or only has a short period of credit before applying for a home loan. Some people prefer to simply pay cash for their computers, cars, or cell phones. But the lack of use of credit can lower your score.

That does not mean that the lender automatically considers you a bad risk on a mortgage loan.

Even if you have made credit mistakes in the past and your borrowing reflects those mistakes, waiting for the home loan to be approved will not necessarily mean the end of your home loan.

When applying for an FHA home purchase loan, the lender will want to know how much more of a down payment you may be willing to make above the minimum amount.

A larger down payment can help overcome some credit problems if the lender allows it. And there are other factors to consider.

If you have “significant cash reserves,” you should inform the lender of the nature and amount of those reserves as they could make a difference in loan approval for marginal FICO scores.

This is true because your wealth is an important part of your financial picture. A lower credit but more wealthy, high income borrower is considered stable and reliable, and other factors may be surprised at how flexible the participating FHA lender could be – but it all depends on these additional factors.

If you have a marginal credit score or are concerned that your credit score is not high enough, making payments on your debts on time for 12 months before attempting an FHA home loan can improve your chances of getting a home loan.

Avoid opening or applying for new lines of credit, and avoid canceling your cards or increasing the balance on these cards in the 12 months leading up to your credit.

It is also highly recommended that you lower your credit card balances as much as possible and save more money on a higher deposit in the 12 months leading up to the application.

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