FHA FICO Score Minimums

Mortgage and Lending with Mortgage Miracles Happen, NMLS ID: 1289680 NMLS # 285653

It's true that the FHA does list a minimum FICO score of 500, but very few lenders offer this financing option.  Many lenders have "Overlay's", or "Additional Required Guidelines" to qualify for a home mortgage.  Why is this? The lower the fico score, the higher the likelihood of the borrower defaulting. The risk of a borrower defaulting can count negatively against the lender and the loan officer.


HUD tracks borrowers defaults and tracks which lenders and loan officers were involved in the transaction and wrote the loans, it si called "Lenders Compare Ratio". The FHA's Lender Compare Ratio is calculated for all lenders. This ratio is geographically based, comparing the rate of early defaults and claims for single family loans in a geographic area to other mortgagees in the same area.


Both the mortgage lender and the loan officer have Compare Ratios that follow them throughout their careers.  The more defaults that their borrowers have, HUD can essentially not allow that entity or person to issue FHA loans in the future. So the risk factor is not just there for FHA but also for the lending entity and the loan officer.


Many lenders have had a minimum FICO score requirement of 640 over the past 6 years. Some have been 620. This is to mitigate their risk with their Compare Ratio. To only require a 3.5% down payment, a minimum score of 580 is required.


The minimum required FICO Score to get an FHA loan is 500.  For borrowers who have FICO scores below 580, 10% down payment of 10% equity for a refinance is required with FICO scores below 580 (500 to 579).


However, these score requirements are the FHA minimums, not the lender’s standards. Many lenders FICO scores vary from the FHA loan rules and are usually more strict than the FHA guidelines FICO score requirements.


There are a few items a person can do to improve their credit score or even correct credit reports (without paying third parties to do so on the borrower’s behalf). Paying off or paying down debt, paying accounts on time are the best ways to improve your scores.


Credit scores are a critical part of the loan approval process. Striving to get a high credit score and a repayment history with 12 months of not missing a payment is vital to increasing your FICO scores.


To be eligible for an FHA loan, you have a maximum of 1non-mortgage late in the past 12 months. Though this is not recommended, it is possible to have one late payment in the past 12 months.


Whether your FICO score is in the 700's, 800's or if your FICO score is on the lower end of the minimum standard of FHA, we can help you get the financing you need to either purchase a home or refinance your current FHA loan.


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