Minimum credit score for FHA loan

As of 2010 you’ll need a minimum credit score of 580 if you want to take advantage of the 3.5% down payment, which is the biggest benefits of an FHA loan.

For a credit score between 500-580 you’ll need to come up with at least 10% down payment.

That being said, you need to keep in mind that the FHA plan is just an insurance plan for lenders. It’s very difficult to actually find a lender willing to give you a loan with a 580 score, let alone 530. Most lenders apply stricter requirements than the FHA guidelines, and from what I’ve been hearing, actual approvals are now much higher, in the 620-640 range. The only two lenders I am aware of that will even entertain a sub-620 FHA mortgage loans are Wells Fargo and Bank of America.

Another thing to keep in mind is that mortgage companies use a special Fico formula called Factual. Only lenders can see your Factual Fico score, which is usually lower than the ‘Standard’ Fico scores you can get. The only way you can see your ‘Factual’ Fico score is by actually applying for a mortgage and having the mortgage officer pull it in his system.

Credit score by itself is not enough and doesn’t guaranty loan approval. Although people with few old derogatory items may still be considered for an FHA loan, they’ll need to demonstrate that their past credit problems are resolve. In particular:

• Late rent or mortgage payments of more than 30 days are not acceptable.
• A person must have no more than 1 – 2 payments on revolving credit (e.g. credit cards) and none more than 60 days past due within the past two years
• People with past bankruptcies or foreclosures may be considered, provided the reasons were valid and the applicant has shown a good faith effort to reestablish credit (this means 2-4 years of rebuilding credit).

You’ll also need to demonstrate:

• Minimum of 2 years stable work history
• Self resources to pay a significant down payment
• Low debt to income ratio
• Additional resources to pay closing costs

Lastly, keep in mind that there are exceptions to any rule. A person with 640 credit score but with mountain of debt might get rejected, while a person with a 615 credit score but with very little debt who can come up with a large down payment might still get approved,.

Because of this, having a score that is above the minimum credit score for FHA loan doesn’t guaranty anything. The only way to know for sure if you qualify for a FHA loan is to actually apply for one. Only a lender can tell you if you meet their standards.