Credit score for FHA loan and mortgage insurance – can you get a loan with no FICO score?
Q: What is the credit score needed to qualify for FHA loan? I am looking to buy and see all kinds of numbers as low as 500, while many sites claim that no credit score is needed whatsoever. I talked to a mortgage broker, and he told me that I can get FHA loan with middle FICO score of 460. He also said with FHA I will not have to pay mortgage insurance even if I put less the 20 percent down. He isn’t licensed to make FHA loans however.
A: Credit score for FHA loan is not as low as 460 for sure. The government now pushing the FHA loans pretty much for everyone, and they are getting very popular. There are a lot of incorrect information out there with regards of FICO. With mortgage brokerage business on its last legs I believe, everyone is talking FHA. Quite a few of friends of mine are trying to get approved. I will try to summarize the very latest credit score requirements for FHA. Understand however one thing. Currently, the FHA highly recommends having a decent payment history for at least 1 year, before applying for any FHA loan program.
Now, the other thing to understand is that the FHA doesn’t underwrite home loans, but simply is a federal assistance program with loans insured by the Federal Housing Administration. The loan may be only issued by federally qualified lenders.
The key advantage for FHA loans is that they require only 3.5 percent of the purchase price as a down payment, while conventional loans now require at least 10 percent down. Your down payment can still come from a gift, a charitable organization or a state/city down payment assistance program.
Now, requirement for credit score for FHA loan. While it is true that FHA loans have very reasonable FICO score qualifying guidelines, actual lenders do look for a much higher FICO score. Currently, I believe, the FHA wants a minimum credit score requirement of 550, if you are putting less than 10 percent down. However, you will be very hard to pressed getting a loan with less than 600 middle credit score. In addition, your interest rate will be higher by around .375%, than the FHA loan rate for 620 credit score borrower. Here are other FICO related guidelines, which again, may not agree with those of actual lenders. It does not concern you, but others are asking
- cash out refinance with Loan To Value over 85% requires middle 580 credit score
- cash out FHA refinance for mobile home loans over 85% LTV will now require an Accept/Approve response from Total Scorecard, and the minimum 580 FICO
- if you are in Chapter 13 bankruptcy you are limited to a maximum Loan To Value for cash out refinance transactions of 85%, regardless of the Total Scorecard response
- if you had Chapter 7 bankruptcy and was late on the mortgage after the bankruptcy was discharged, you are also limited to a maximum Loan To Value for cash out refinance transactions of 85%, unless an Accept/Approve response is received from the Total Scorecard
- if you filed Chapter 7 and was discharged within last 2 years, you are not eligible for FHA loan, no matter what your credit scores are, unless an Accept/Approve response is received from the Total Scorecard
- if you were foreclosed within the past 3 years, you are not eligible for FHA financing unless an Accept/Approve response is received from the Total Scorecard.
Sorry if it sounds too convoluted and confusing, and you only asked about credit scores for FHA loan. Trying to be helpful … , now FHA mortgage insurance situation. It is also quite confusing. Unlike conventional loans PMI, at least the way they used to be, FHA MI depends not only upon Loan To Value, but type of loan, loan term, number of units (from 1 to 4) and few other things. The following I hope, is the latest and all inclusive information.
There is an up front mortgage insurance premium or UFMIP equal to 1.5% of the loan amount that is paid at settlement. In most cases, this mortgage insurance premium is rolled into your loan amount. In addition, on loans with a term of greater than 15 years and a down payment less than 10%, you will pay an annual mortgage insurance premium of .5% of the loan amount in monthly installments. If your down payment is less than 5%, an annual insurance is .55%.
FHA monthly mortgage insurance payments will be automatically terminated when the following happens,
- for mortgages with terms 15 years and less and with Loan To Value over 90%, annual premiums will be canceled when the Loan To Value ratio reaches 78% regardless of the amount of time the mortgagor has paid the premiums
- for mortgages with terms more than 15 years, the annual mortgage insurance premiums will be canceled when the Loan To Value ratio reaches 78%, provided the mortgagor has paid the annual premium for at least 5 years.
- FHA mortgages with terms 15 years and less and with Loan to Value ratios of 89.99% and less will not be charged annual mortgage insurance premiums.
Those are, again FHA guidelines. Many qualified lenders charge UFMIP equal to 1.75% for refinance loans, except when you refinance your existent FHA loan to a new FHA, called Streamline refinance.
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