The credit requirements for the FHA loan are comparatively less stringent compared to
- Conventional Mortgage Loan
- VA Home Loan
- USDA Home Loan
The first thing to understand is that there is no specific score requirement specified by the FHA. Loans are underwritten based on a borrower’s overall credit profile. Most lenders use automated systems like Fannie Mae’s Desktop Underwriter or Freddie Mac’s Loan Prospector, along with investor-specified credit score requirements, to determine eligibility. If the loan is self-approved by DU or LP and scoring requirements are met, underwriters relatively easily accept other factors such as delays (not mortgage delays), collections, and charge-offs. In general, a prospective buyer may not like to pay for old charge-offs or charges and this may be possible with automatic approval.
Judgments and Fiscal Links
Judgments and tax liens are a different ball game as they affect the title. Certain lenders may accept a 12-month history from the IRS and prospective buyers may not be required to clear the entire outstanding tax bond at once. Judgments normally must be paid.
Credit scores 640+ or 620+
The credit requirements required by most FHA home loan lenders have already increased to 640 in recent months. Previous score requirements were 620. There are some lenders that will finance borrowers with a 620+ fico. There are no additional price impacts for FICO below 640 and above 620.
Credit scores below 620
Few FHA home loan lenders will accept such borrowers, if they have NO NEW arrears in the past 12 months. Any new collections or open cancellations as a result of arrears before the last 12 months are considered OK.
No active business lines or no scores
The same principle applies. Some FHA home loan lenders will accept such borrowers if they have NO NEW delinquencies in the past 12 months. Any new collections or open charge-offs as a result of delinquencies prior to the last 12 months are considered OK only if non-traditional credit can be established. The Non-Traditional Credit for 12 months can be documented in the form of Rent payments, Telephone/Cellular payments, Electricity, Water, Garbage, Cable, Storage or any other payment made consistently during the last 12 months. Generally a combination of 4 traditional or non-traditional lines is required.
Prospective homebuyers should read the complete lending information on FHA Loans, VA Home Loans, USDA Loans, Conventional Loans.
Access PreQual’s Affordable Mortgage Calculator
