This is Part Two in a three part series about FHA mortgage loans. Part One talked about the changes in FHA loans going into effect on Jan. 1 and the things that wouldn’t be changing. In this installment, I will cover some credit issues having to do with FHA loans.
FHA mortgage loans do not have a minimum credit score requirement. However, FHA does not make the loans, they insure them. The lenders that make the loans may have different rules. In this case, it is the Golden Rule; he with the gold makes the rule!
- Different lenders, because of the above, will have different cut off points for credit score. The lowest credit score that we can use is 550.
- There are charges for lower credit score customers, depending on the investor on the loan. If the score is 620 or above, normally, there is no extra charge for credit score. If the score is below 580, the charge goes up.
- FHA borrowers do not have to have a credit score. If no score is received, the customer can qualify on what is called “non-traditional” credit. For example, credit rating from landlord, insurance agency, power company, TV cable company or telephone company. At least three sources of “non-traditional” credit are generally required.
- Chapter 7 Bankruptcy is acceptable after two years from discharge (not filing) if new credit has been established. There are exceptions to this deadline in the case of extenuating circumstances. Trust me; the inability to keep up with your responsibilities is not an extenuating circumstance. Death, preferably your own, will often qualify your for this exception.
- Chapter 13 Bankruptcy after a year in the program, with the Trustee approval, will be considered under FHA guidelines. All payments in the program must have been made on time.
- FHA underwriting pays very close attention to the past 12 months of payment history. Normally, if there are late payments in the past 12 months, an applicant should wait until the last late payment is over 12 months old. Exception to this rule: when an automated approval is received, this requirement may be superseded.
This is just a brief overview of what underwriting requirements are for FHA mortgage loans. Every FHA loan application is considered on its own. The automated system used to underwrite FHA loans is called the “Total Scorecard,” but can, in certain circumstances, be overridden by the underwriter. Stay tuned for Part Three of this series.
authored by Fred Chamberlin, senior mortgage consultant, Eugene/Springfield Oregon, 541-342-7576
I have read your couple of recent posts and don't see any mention and frankly it just may not be relavent in your area, but I heard a nasty rumor that I have not been able to confirm about FHA not insuring manufactured home loans anymore... Say it ain't so??? We sell a ton of those where I live.
Yes and no. How is that for a definitive answer Tammy. Some lenders have dropped manufactured homes from their list of homes they will accept for FHA or conventional. We got a notice today that GB Mortgage is doing that. However, we still have lenders (at this moment in time) that will still accept manufactured homes for FHA and conventional loans.
Fred....great information. So many people, buying a home or not, don't realize how important credit is! And how hard it can be to get, or get back if you lose it!
But, what do you do when it get's to be a problem making the payments because of a job loss. It sucks....because it can take a long time to build it back up.
Let's hope not to many hard working people have to face this in the mirror!
Just make sure those manus have tie downs :)
thanks for the updates on requirements
Thom - I hope we will see a resurgence in business and more people getting back to work.
Thesa - you have that right. Foundation and tiedowns. We have to be careful of tornados and hurricanes in LaPine.
Hi Fred, Good informative post, as always. Thanks for doing such a great job of keeping us abreast of FHA requirements and have a great day!
My first Broker made me repeat the mantra "he who has the gold makes the rules" and I've never forgotten it. Wow! That brings back some memories!
Sandy - Thank you, I will certainly try.
Cecily - it is a good rule to remember.
Fred, it sometimes blows my Realtor's mind when I have told them that I can not do a purchase for less than a 580 score.
Danny - The amazing part is that some people don't realize what you have to do to get a credit score that low. We can do FHA loans down to 550, but it isn't easy.
Thanks for the info!
Kristin - You are very welcome.
I am interested in obtaining an FHA mortgage and appreciate the info. Their standard is a little bit higher than what you stated. They've informed me that I am 17 points too low to meet their credit score standard.
Is it possible to raise my score by 17 points within the next 4 to 5 months, or should I start looking for another 'temporary living solution'. I have paid in full all negative debt within the past 4 weeks and I am current with 2 other items.
Cheryl
Cheryl, I can't comment about what you were told, because FHA still doesn't have a minimum credit scroe requirement. Different lenders have set their own minimums. At last check, I still had one lender that didn't have the 620 minimum, but I honestly haven't talked to them for a couple of weeks and it is always possible they changed.
If you want specifics, then I need specifics. Where are you? What do you want to accomplish? What is your actual credit? I can't give specific answers for general questions. If you want more, contact me directly. I know there are some that will answer a general question with a specific answer, but I won't.
We are currently trying to build our own house in Louisiana. Does FHA require a licensed builder on new construction loans? If so, is there any way around it?