A reader got in touch with a question in the comments section about FHA loan FICO score requirements, asking, "I have a client that was denied by my lender but has an approval by another. My situation is this.parents are putting $200k down for the purchase. The boys will be qualifying for the $150k balance. Mid FICOS are 600 and 602 and one son has two lates within the last 6 months. My lender said that with a score below 640, they fall into a different category that prohibits any lates in the past 12 months. Can you please clarify?"
Lender standards vary from one financial institution to another, so it's entirely possible what the reader is asking about here is a specific lender's standard. In general it's strongly discouraged to come to the FHA loan application process with no fewer than 12 months of on-time payments for all financial obligations.
In some cases a late payment may or may not be a major issue, but much depends on the nature of the debt--for example, a late mortgage payment in the last 12 months would be viewed quite seriously by the lender.
That's not to say that other types of payment are given greater leeway when they are reported late in the last 12 months, but the mortgage issue is critical--the borrower is applying for a similar type of loan and the lender needs to see a pattern of reliability and financial responsibility.
When FICO scores are "marginal" these factors become even more critical--in some cases the lender may already be "on the fence" about approving a loan with an applicant's lower-than-average FICO score and seeing a record of late or missed payments won't help at all. So it's best to come to the process with a full 12 months of on-time payments.
Borrowers who need help with pre-purchase issues like these should consider calling the FHA at 1-800 CALL FHA and requesting a referral to a local, HUD-approved housing counselor who can review the borrower's individual needs and circumstances and offer advice that can help better prepare the applicant to begin the home loan process when the time is right.
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
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