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When it comes to FICO scores, many soon-to-be FHA loan applicants feel worried or concerned; they aren’t sure if their scores are good enough to qualify for an FHA home loan. Some have FICO scores they worry are so low that they should be looking for second chance financing

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What's Your FICO Score?

July 6, 2015 - When it comes to FICO scores, many soon-to-be FHA loan applicants feel worried or concerned; they aren’t sure if their scores are good enough to qualify for an FHA home loan. Some have FICO scores they worry are so low that they should be looking for “second chance” financing instead of an FHA home loan.

Here’s a variation on a commonly asked question we get on a regular basis. “I have a FICO score of 565 and I am trying see if I qualify for an FHA mortgage. I am a first time home buyer.”

FHA loan rules and instructions to participating lenders include a helpful chart found in HUD 4155.1. This chart explains the minimum required FICO scores needed to get an FHA mortgage. It says that for borrowers who have credit scores (FICO scores) at 580 or above, maximum FHA financing is available. Borrowers with FICO scores between 500 and 579 are still eligible for FHA loans, but a higher down payment is required (10% minimum). FHA loan applicants with FICO scores below 500 will not be approved for an FHA mortgage.

What exactly does it mean to be eligible or ineligible for “maximum financing”?

What this means is that borrowers who have a qualifying FICO score of 580 or higher are technically eligible for a home loan that can be as much as 96.5% of the total appraised value or asking price of the home. The other 3.5% is a required down payment amount.

In other words, a borrower with FICO scores at 580 or above is eligible for the full amount of the asking price or appraised value of the home and any associated loan fees or expenses permitted to be included in the loan amount–and this is the important part–AFTER the borrower has made a minimum required down payment of 3.5%.

Borrowers who are not eligible for the full amount because their FICO scores are between 500 and 579 must pay ten percent down or more depending on the lender. Lender standards apply in addition to the FHA minimums mentioned here.

Remember, these numbers you’re reading about here are the FHA minimum standards only–any participating lender may have higher standards depending on the situation, and this is acceptable under the FHA loan program. Your credit scores and other financial qualifications may play a big part in the amount of the down payment, interest rate and other factors associated with the loan as a credit-qualifying transaction.