New FHA Credit Score Requirements Take Effect This Week

FHA logoWe have previously written about some new credit score requirements for FHA home loans. These changes went into effect yesterday, October 4. Here is a summary of what has changed.

  • In order to be eligible for an FHA home loan, borrowers must have a FICO credit score of 500 or above. Borrowers with credit scores below 500 are not eligible for the program. *
  • Borrowers with a credit score of 580 or above can qualify for the 3.5% down-payment option. In other words, they can put as little as 3.5% down when using an FHA loan.
  • Borrowers with a credit score between 500 and 579 will have to put at least 10% down when using an FHA loan.

* While this is now an official FHA credit requirement, it doesn’t really change much. People with FICO scores below 500 probably would not have qualified for an FHA loan in the past, either. This just makes it official.

According to the Department of Housing and Urban Development (HUD): “This [change] allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.”

There are other benefits to maintaining a high credit score. In addition to qualifying for the lower down-payment option, you’ll also qualify for a lower interest rate. Credit scores are one of the top three factors mortgage lenders use to assign interest rates. If your FICO score is north of 700, you may qualify for the best rates the lender has to offer. Of course, you might have to pay half a point or more at closing. But the cumulative savings over time will typically justify the extra up-front cost.