Get FHA Financing with less than 580!
Did you know that you could get FHA financing with less than a 580 score?
That’s right. While most conventional lenders require a minimum of a 640 the score for FHA is 580. What if your score is below the required minimum? Can you still be approved for FHA financing?
Yes is the answer to both questions. In fact I have recently completed two refinances for clients who had a 550 mid-score! From a processing and underwriting perspective a file with a less than 620 score will normally produce a refer/eligible result from the Fannie Mae automatic underwriting system (AUS). This means that the file is eligible for FHA financing and the refer indicates that the file as per FHA guidelines has to be underwritten manually.
Normally the manual underwrite will prolong the application process by approximately 2 weeks but will still produce the desired result of a loan approval for purchase OR refinance.
The other caveats when working with lower scores to determine the risks associated with the borrower are compensating factors like income, assets, and credit. While lenders like to see multiple open lines of credit with a minimum of 24 months reporting history, some loan programs allow borrowers to use alternative forms of credit to qualify for a loan.
The basic rule of thumb for acceptable credit history is a minimum of 4 trade lines documented on a credit report. There are alternative methods of building a credit picture that an underwriter can use to make a decision for a loan approval.
For potential home buyers with little or no credit history, keeping records for 12 months of paying bills on time is essential for mortgage loan approval. In fact, loan officers will appreciate receiving proof that you have paid a variety of accounts regularly and on time. Even if you do not have a credit history, or your credit report isn’t as good as it could be, this may enable you to get a mortgage.The industry term for this is “thin credit.”
Some loan types, namely FHA and USDA, will accept alternative credit sources in order to establish proof of financial responsibility.
Alternative credit is unreported to the bureaus, but will still be verified and can be instrumental in a home loan approval. It is important to note that if any consumer disputes are listed on your credit report they will have to be removed before proceeding with the mortgage application.
Those with thin credit don’t usually have bad credit, but have just not had an opportunity to build enough traditional credit, such as bank/store credit cards, auto loans, etc. Alternative Sources for Building Credit:
Rental History – Canceled checks and letter from property Management Company
Medical Bills – 12 months of statements from medical billing company showing paid as agreed
Utilities – power, gas, water, cable, cell phone
Auto Insurance
Health / Life Insurance – as long as it’s not auto-deducted from pay check
Whether you’re a First-Time Home Buyer or seasoned investor, the mortgage approval process can be a slightly overwhelming adventure without a proper road map and good team in your corner.
Steve Edwards is a Sr. Loan originator with Noble home loans. He has over 20 years’ experience in the mortgage industry and is well averse with a variety of loan programs including FHA, VA USDA and conventional financing.