In a bid to boost its capital reserves, the FHA has proposed three initiatives aimed at improving loan quality.
Most notably, new borrowers seeking FHA-insured financing will need a minimum Fico score of 580 to qualify for the “flagship 3.5 percent down payment program.”
Additionally, borrowers with Fico scores below 580 will need to bring in at least a 10 percent down payment, while those with credit scores below 500 will be out of luck entirely.
It could have been worse – a proposal (eventually shot down) to up the minimum down payment to five percent across the board would have reduced FHA endorsements by 40 percent.
But apparently not all FHA loans are high loan-to-value loans; during the fourth quarter, more than 21 percent had a LTV lower than 90 percent.
As noted earlier, allowable seller concessions will be cut in half to three percent, in line with industry standards.
The previous six percent allowance exposed the FHA to excess risk by potentially driving up the cost of a home beyond its appraised value.
Finally, the FHA plans to implement tighter underwriting standards for manually underwritten loans.
When using compensating factors to qualify borrowers, mortgage lenders will be required to consider factors that are the “best predictive indicators of loan performance,” such as credit history, loan-to-value, debt-to-income ratio, and asset reserves.
These changes should allow the FHA to continue its mission of providing mortgage financing to underserved communities (and everyone else).
Can you please, please help me? My credit score is 531. I know that this is exceptionally low. However I’ve been told by many loan officers that there are some mortgage companies that will grant me a loan albeit at a higher rate. There has to be mortgage company that specializes in high risk clients. From properties I have researched, one asks 79,000 the other 169,000. I do have a modest retirement account that I can use as collateral. I am hoping to hear from you soon and that you will give me some positive informaion. Kathryn
Kathryn,
Most FHA lenders don’t go below 550…and even then it will cost you via a higher mortgage rate and/or closing costs. You can shop around but I’m not sure anyone offers FHA loans with scores that low. You may be better off determining why your credit score is low and taking measures to improve it before applying.
I talked to a mortgage guy and he said my score is 611 and is too low for a loan. That’s not what I’ve read here so what do i do?
Terry,
It is possible to get a loan with a score lower than 611, but it also depends on other factors such as employment history, income, assets, etc. So credit score isn’t the only thing that is considered. Ask if there’s another reason you’re being denied.
I use credit karma and was told my scores were 522 and 533, but when I applied with my bank they said it was 485 and too low to qualify anywhere. I’ve had the same job for two years was told if I kept same job for a year I could get qualified. Obviously this isn’t enough to get approved. I want to get a home with my dad and my two kids don’t want to stay in my tiny apartment another year. I have good rental history, but obviously I still have much work to do.