The Federal Housing Administration (FHA) comprises loan programs that are one of the most sought after in the country, especially programs that involve only 3.5 percent payments for first-time homebuyers. But like any home mortgage, FHA will look over your credit score prior to opting to insure a loan composed by a FHA-qualified lender. Recently, FHA changed its minimum credit score criteria.
Early in 2010, the U.S. Department of Housing and Urban Development (HUD), the division that runs FHA, declared an increase in its criteria on credit ratings to get FHA-insured loans. If you’re a new homeowner looking for an FHA-insured loan, you need to have a minimum FICO score of 580. According to HUD, the new minimum score was set to go into effect in the summer of 2010.
What The Score Means
According to HUD, a minimum score of 580 implies you qualify for FHA’s best down payment program. FHA includes a down payment program that needs you to put down only 3.5 percent of their entire price of the house at signing, substantially lower than most lenders charge on traditional home mortgages. It’s one reason that FHA-insured loans are sought after by first homeowners. If your credit score falls under 580, it does not mean that you are not eligible for an FHA-insured loan. It only suggests you don’t qualify for the 3.5 percent program. HUD says that borrowers who fall beneath the score and want an FHA loan will need to put at least 10% at signing.
Enhancing Your Score
If your score falls under the 580 threshold, then there are ways for you to improve your score. FHA recommends setting on-time payments along with your credit-related debt to get a year before trying to secure an FHA-insured loan. Additionally, it says paying down and closing one or two credit cards or loans improves your rating and shows you have a bigger debt threshold. You also need to check your own credit regularly to be sure that there are no mistakes. If you have had a serious life event, like bankruptcy, tax exemptions or foreclosure, then you should wait 2-3 years before trying to secure an FHA-insured loan.
Your credit score is part of your own credit report, and your FHA lender will pull it to ascertain your eligibility. The report must have a comprehensive employment history, upgraded credit reports over 90 days of your application, and your current income. Your lender can pull up your credit report via some of those three nationally recognized credit agencies. But your lender can also put together a nontraditional credit report, if you haven’t established a background with credit cards or automobile loans. To do so, your lender will request your payment history on things like leasing payments, utilities, telephone, cable, insurance and child care providers to ascertain your creditworthiness.
The Entire Scorecard
FHA now comes with an abysmal tool called the FHA Total Scorecard, where the credit score plays a role. You Can Opt to apply for an FHA-insured loan via the World Wide Web. In doing this, the application is subject to the Total Scorecard program, which determines your eligibility in real time. It ensures your application will be evaluated objectively by FHA. It ensures that you will not be turned down. You may either be accepted or referred to a FHA lender for manual underwriting.