Minimum Credit Scores on FHA Mortgage Loans

You can get a FHA mortgage with a credit score as low as 500. These minimum credit scores on FHA loans offers you a layer of protection against getting a home that you ultimately cannot afford. It also gives the lender a layer of protection against lending to someone who cannot handle the commitment. Why are credit scores so important anyway? A credit score is single digit that is a culmination of the information on your credit history. Your score goes up with good credit practices and goes down with bad credit practices. A high score is an indication if you are ready to take on the responsibility of a mortgage.

Lenders have the final decision on whether they will loan to any borrower. One common misconception about an FHA mortgage is the loan actually comes from the federal government. In reality, an FHA loan is a loan you get from a private lender, which has underwriting from the FHA. With government backing, FHA lenders will lend at better terms on these loans. However, in the end, they have no obligation to lend to anyone if they deem them not creditworthy. While FHA guidelines allow loans to those with credit scores of 500 or above, the lender will look at other factors to determine if the loan will work or not.

There are compensating factors lenders can consider when looking at someone with a score lower than 580. To get a typical FHA home loan, you need a score of at least 580. In many cases, lenders will require one at 620. For those with scores lower than 580, in order to reduce the risk, the lender may require that the borrower come up with a higher down payment. For example, typical FHA loans require a minimum of 3.5% down. The lender may require between 5% and 10% down instead. This is only one factor that lenders may require for approving a loan to someone with a very low credit score.

When you start asking about minimum credit scores on FHA loans, you need to be in a solid financial position when approaching a lender. You need to show that you have the income levels they require. They will also like to see if you are making changes to get your financial situation back in line. You may have gone through a layoff. Before getting another job, you may have had issues with meeting your debt obligations. If you can show you have been working to get current, the lender will look more favorably on the loan application.