Quicken Loans, the largest online retail mortgage lender in the United States, offers FHA loans to well-qualified borrowers with credit scores as low as 580. This is based on recent comments made by Quicken Loans vice president Bill Banfield, as reported in the Washington Post.
Banfield added that “there have been a lot of changes” in the mortgage industry lately, many of which could make it easier for borrowers to qualify for home loans. This is good news for people planning to buying a house in 2016.
The FICO scoring model is the one most commonly used by mortgage lenders. Under this system, scores range from 300 to 850. A lower number indicates a higher level of risk for the lender, and is often the result of past credit problems. A higher number indicates a lower risk.
Quicken Loans Allows Credit Scores as Low as 580 for FHA
While the recent Washington Post article gives borrowers additional insight into what it takes to qualify for an FHA loan, in a sense it’s “old news.” According to its website, Quicken Loans began offering Federal Housing Administration-insured home loans to borrowers with credit scores of 580 back in 2011. A January 2011 blog post on the company’s website stated the following:
“Good news has returned for consumers interested in FHA loans who may not have qualified in previous months. At Quicken Loans, consumers may now qualify for an FHA loan with a credit score of 580 and above.”
A Home Buying Institute email survey conducted earlier this year revealed that many lenders are setting the credit score “bar” at 600, as far as FHA mortgage loans are concerned. That means Quicken Loans is slightly more flexible in this area, when compared to national trends and criteria.
In Line With HUD’s Requirement for a 3.5% Down Payment
The minimum 580 credit score mentioned above is actually in line with the upper-tier cutoff set by the Department of Housing and Urban Development (HUD). HUD manages all aspects of the FHA loan program, including credit-score requirements for borrowers.
According to HUD Handbook 4000.1 (a.k.a., Single-Family Housing Policy Handbook): “If the borrower’s minimum decision credit score is at or above 580, the the borrower is eligible for maximum financing.”
In contrast, borrowers with minimum decision credit scores between 500 and 579 are limited to a maximum loan-to-value (LTV) ratio of 90%. Stated differently, borrowers who fall into this range must make a down payment of 10% or more for an FHA loan. Learn more about LTV ratios.
So in theory, borrowers with credit scores of 580 could qualify for an FHA loan with a minimum down payment of 3.5%.
Granted, there are other factors that go into the qualification mix as well. Mortgage lenders also look at debt-to-income (DTI) ratios, assets, employment stability, and other risk factors. With that being said, credit scores are one of the more important criteria for borrowers seeking an FHA loan.
A Higher Score Could Get You a Better Rate
A high credit score could help you qualify for a mortgage loan. But the benefits go beyond that. Borrowers with excellent credit tend to secure better (lower) interest rates on home loans, when compared to those on the lower end of the FICO scale.
The savings resulting from a “discounted” mortgage rate can add up to thousands of dollars over the life of the loan. That’s why it’s so important for home buyers to maintain good credit — at least those who have to rely on mortgage financing.
Disclaimers: This article discusses the FHA credit score requirements used by Quicken loans. Information for the story was obtained by the company’s website as well as a Washington Post article from September 2015. HUD’s credit score criteria can be found in HUD Handbook 4000.1, which took effect in September of this year. We make no claims or assertions about the FHA qualification standards used by Quicken Loans or any other mortgage lender. To learn more about their products and programs, please contact the company directly or refer to their website at Quickenloans.com.