New FHA Credit Guidelines, Effective April 5, 2010.
Posted by John Scott Smith on Wed, Feb 24, 2010 @ 10:23 AM
I have seen an awful lot of information (and misinformation) flying around the web regarding the changes to FHA Credit Guidelines. Over at Housingwire, homebuilders are pulling a Chicken Little, suggesting that the sky shall, indeed, fall as guidelines and seller contribution toward closing costs are changed. And, at the other end of the spectrum, Hot Air suggests that we need to tighten credit requirements much, much more or else the end is neigh.
(As I have already said in a previous blog entry, FHA Commissioner Stevens has clearly stated that the purpose of the FHA is to serve the under-served buyer: the ones whom the banks are less willing to assist, which means that in the coming weeks and months, Hot Air will have much more material about which to complain.)
Historically, FHA mortgages have not been credit driven. FHA, which actually insures mortgages without loaning the money, itself, has not and does not, now, have a minimum credit score. In reality, though, the banks who actually do the lending part of the equation have been tightening up their credit qualifications.
As reported recently in the Chicago Tribune and Bloomberg, the FHA has stated that it intends to raise the downpayment requirement on borrowers with less than a 580 credit score to ten percent (10%) down. In order to qualify for only three and a half percent (3.5%) downpayment, you will need to have greater than a 580 middle credit score.
An even more important point in both the Tribune and Bloomberg articles is that most banks, brokers, and lending institutions are no longer giving FHA mortgages to borrowers with lower than 620 credit scores.
And, there you have it. FHA will require a ten percent (10%) downpayment if your middle credit score is less than a 580, BUT almost every bank and brokerage that is selling mortgages insured by the FHA (and, certainly, every one that I've found) is requiring a minimum 620 credit score to get financed.
What this means to you, the consumer, is that if your middle credit score is less than a 620, you will not be able to secure an FHA mortgage until after you've taken action to address your credit score. Period.
If you'd like to speak with someone about addressing your credit issues, just let us know, and we'll have someone contact you.
Author's note: Why am I including so many links within these articles? Well, as the late Senator Patrick Moynihan said, "Everyone is entitled to his own opinion, but not to his own facts." In the blogosphere, there is so much opinion being bandied about as fact that I want to make sure that here, we provide links back to the primary literature whenever feasible. I am keeping the information on this page factual, and I want to give you every opportunity to review the primary sources and form your own opinions.
Join the conversation. Comment, below. Tweet. Call us out or voice your support.
Follow us on Twitter or Facebook to participate and stay informed on the latest developments, news, and policies affecting the FHA and FHA mortgages. Follow the author, John Scott Smith, on Twitter.