HUD Minimum Credit Score Guidelines On FHA Loans
In this blog, we will cover and discuss the HUD minimum credit score guidelines on FHA loans. Over 75% of our borrowers at Gustan Cho Associates are folks who come to us because they cannot qualify for FHA loans at other lenders. Many are often confused about why lenders have their own credit score requirements. Some lenders require 620 credit scores. Other lenders will require a 640 credit score. Yet other lenders will have weird out-of-the-box FHA Guidelines like imposing no non-occupant co-borrowers for those with under 640 credit scores. So what is the real answer when it comes to FHA loans is the question many borrowers need answers to.
What Are FHA Loans and How Does FHA Loan Program Work?
The United States Department of Housing and Urban Development (HUD) is the parent federal agency of the Federal Housing Administration (The FHA). All lenders need to meet HUD 4000.1 FHA Handbook Mortgage Guidelines which is the HUD Agency Guidelines. However, lenders can have their own lending requirements on FHA Loans that require higher credit scores, lower DTI, and set higher lending standards which are called lender overlays. Therefore, not all lenders have the same Mortgage Lending Requirements on FHA loans. This holds true with HUD Minimum Credit Score Guidelines.
Who Sets The FHA Minimum Credit Score Requirements
HUD sets minimum credit score requirements on FHA loans. However, lenders can require higher credit score requirements called lender overlays on credit scores. Borrowers can qualify for an FHA loan with credit scores down to 500 FICO. To qualify for a 3.5% down payment FHA loan, you need at least a 580 credit score. Borrowers with credit scores under 580 and down to 500 FICO are eligible for an FHA loan with a 10% down payment. In this blog, we will cover HUD Minimum Credit Score Guidelines versus lender overlays on FHA loans. Gustan Cho Associates has no overlays on FHA loans. Whatever the minimum HUD Minimum Credit Score Guidelines are is what we go by. There are no additional lender overlays on FHA loans.
HUD Agency Guidelines Versus Lender Overlays
Most lenders have lender overlays on government and conventional loans. Gustan Cho Associates is one of the very few mortgage companies with no lender overlays. We just go off minimum Agency Guidelines and have zero lender overlays. As long as borrowers can get an approve/eligible per automated underwriting system (AUS) and can meet the conditions of the AUS, Gustan Cho Associates will not just close your loan but close it on time.
Common Lender Overlays By Mortgage Companies
Here are typical lender overlays by lenders:
- Minimum credit score requirements on FHA Loans such as 620 to 640 FICO
- HUD does not require borrowers to pay outstanding collections and charge off accounts to qualify for FHA Loans
- However, many lenders will require borrowers to satisfy their charge off and collections account as part of their overlays
- The maximum debt to income ratio to get an approve/eligible per automated underwriting system (AUS) on FHA loans is 46.9% front end and 56.9% back end
- However, many lenders often cap their debt to income ratio requirements between 43% to 50% DTI
HUD Minimum Credit Score Guidelines Versus Down Payment
Here are the HUD Minimum Credit Score Guidelines Versus Down Payment Requirements:
- To qualify for a 3.5% down payment FHA loan, the minimum credit score required is 580 FICO
- Borrowers can qualify for FHA Loans with under 580 credit scores
- However, per HUD Guidelines, the minimum down payment requirement for borrowers with under 580 credit scores is 10% down payment
- The lowest credit score allowed to qualify for FHA loans is 500 FICO
Any lender that tells you otherwise than the above HUD Minimum Credit Score Guidelines is telling you NOT the Agency Guidelines but their own individual lender overlays. Borrowers who need to qualify for an FHA loan with a national direct lender with no lender overlays on FHA loans, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.
