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Some FHA loan applicants may feel there is a contradiction between FHA loan rules for FICO score minimums, creditworthiness issues, and loan repayment history requirements. There is no actual contradiction once borrowers realize these are just minimum requirements. Lenders may have higher standards.

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FHA Loan Articles

News and Updates for Homeowners

FHA Credit Requirements Versus Your Lender's Requirements

November 16, 2015 - Some FHA loan applicants may feel there is a seeming contradiction between what is found in FHA loan rules for FICO score minimums, creditworthiness issues, and loan repayment history requirements. “Why,” some borrowers may ask, “have FHA guidelines in place if the participating lenders don’t have to follow them and can overrule them with their own standards?”

There is no actual contradiction once borrowers realize that FHA loan FICO score requirements and other standards are minimum guidelines only, and that a participating lender is free to apply higher standards in accordance with federal law and Fair Housing Act regulations.

FHA’s FICO minimums for example, are not intended to tell lenders how to set their own FICO score policies, but set the baseline for what is acceptable for FHA loan approval. The lender, under FHA loan rules now found in HUD 4000.1, is free to require higher standards as previously mentioned.

We get many questions about credit issues like these, but sometimes these questions are complicated by other problems such as having late or missed payments in the 12 months leading up to the FHA loan application.

The late payment issue is especially tricky, and borrowers may get feedback from the lender they won’t like to hear--basically if you come to the FHA loan process with fewer than 12 months of solid, on-time payments on your financial obligations, your FHA loan application could be in jeopardy.

That may sound like the lender is asking a great deal in some cases because of economic woes, financial hardship, etc. But a review of many lender standards reveals that “12 month rule” is prominent in the underwriting guidelines of many financial institutions, and is considered an industry standard.