Surprising Number Of FHA Home Buyers Have A Credit Score Below 620

5% Of FHA Home Buyers Have A Sub-620 Credit Score

The recent news about Britain leaving European Union (EU) has resulted in mortgage rates hovering near all-time lows.

“Brexit,” as it has come to be known, has increased enthusiasm about diving into the American dream of homeownership.

But after the housing and mortgage downturn, lenders went from extremely liberal to ultra-conservative in regard to credit requirements. Lenders pulled back reins and tightened their underwriting standards substantially.

The good news is that, thanks to the Federal Housing Administration (FHA), you don’t need perfect credit to buy a home. In fact, more than half of all FHA home buyers today have scores below 680.

Some have scores way below that.

According to a report published by the U.S. Department of Housing and Urban Development (HUD), 5.8% of FHA home buyers have credit scores between 500-619.

Even home buyers who assume they can’t qualify for a mortgage should look into FHA home buying now.

What Is An FHA Loan?

The FHA mortgage program launched in 1934 to help boost and stabilize the American housing market.

Still today, these mortgages are backed by FHA. In plain English, FHA makes it easier for people to qualify for a home loan.

Generally speaking, FHA loans are less difficult to qualify for compared to conventional loans

Lenders can offer FHA mortgage loans in cases where the borrower would otherwise be unable to obtain home financing.

Just a few advantages are as follows.

• FHA loans are assumable
• They require a low down payment
• Credit score minimums are low
• FHA loans come with ultra-low interest rates

Thanks to these benefits and others, FHA loans will always play a major role in the U.S. housing market.

Low Credit Score? How Your Credit Score Is “Created”

Credit scores are meant to be a predictor of an applicant’s willingness to make timely payments on their mortgage.

As such, your credit scores will always be one of the most important factors when it comes to qualifying for a mortgage loan.

Higher scores increase the borrower’s chance of getting approved for a mortgage loan. Lower scores on the other hand will hinder your approval chances.

Credit scores are essentially a measurement of risk. Consumers who pay their debts on time are typically rewarded with higher credit scores.

Credit scores can also change based on the amount you owe compared to your credit card limits, as well as any collections in your credit history.

There are a number of credit scoring models in use today. The FICO credit score is the most common scoring system used by mortgage lenders, ranging from 300 – 850.

When it comes to mortgage approvals, lenders use the specific credit scores published by the three well-known, major credit bureaus – Equifax, Experian and TransUnion.

Each of the three bureaus use different methods of credit scoring. They often come up with scores that vary widely. So lenders use the “middle score” of the three.

For example, if your credit scores are 645, 667 and 691, the lender would use 667 as your credit score for approving your mortgage.

FHA Credit Score Requirements

Fortunately for those with less-than-perfect credit, FHA loans allow lower credit scores.

The FHA rules state that they will insure home loans for borrowers who have credit scores as low as 500. However, very few lenders will follow this rule.

For most would-be homeowners interested in an FHA loan, lenders will allow for a credit score as low as 580. Some lenders have additional “investor overlays” requiring credit scores of 620 or higher.

If you’ve been turned down because of a credit score above 580, it’s a good idea to contact different lenders. Be upfront about your credit, and ask about their minimum score.

You might discover that you can be approved after all.

FHA Applicants With No Credit History

What if an applicant has never had a credit account? Their credit report is, essentially, blank.

FHA borrowers with no credit scores may also qualify for a mortgage. In fact, HUD prohibits FHA lenders from denying an application based solely on a borrower’s lack of credit history.

The FHA allows borrowers to build non-traditional credit as an alternative to standard credit history. This can be a huge advantage to someone who’s never had credit scores due to a lack of credit history.

Borrowers can use payment histories on items such as utility bills, cell phone bills, car insurance bills and apartment rent to build non-traditional credit.

Get Today’s FHA Mortgage Rates

FHA mortgage loans continue to play a vital role in mortgage lending, especially for home buyers with less-than-stellar credit history.

Today’s mortgage rates continue to remain at historically low levels. Get your free FHA mortgage rate quote with no obligation, and no social security number is required to get started.