As we mention in the qualifications page, the current minimum credit score required to be approved for an FHA loan with most lenders is normally 600 and for the best rates on FHA streamlines you are best off having a 620 credit score or higher. There a currently no minimum credit scores required for the HARP 2.0 program. In this page we will discuss some of the things borrowers should do to improve their credit scores in order to qualify for a government-back mortgage.
A credit score is also known as a FICO score. When you are applying for a home loan the banks that fund FHA loans require a credit check and they use what is called your “middle score” when determining your credit worthiness. There are three major credit bureaus in the US — Experian, Equifax, and TransUnion — and lenders require that your credit report be pulled at all three bureaus when you apply for a loan. A credit report that includes all three bureaus is called a tri-merge credit report. Determining your middle score is simpler than you might imagine; it simply means discarding the high score and the low score and using the middle score on a tri-merge credit report.
600 minimum for FHA (no minimum requirements for HARP2.0 loans)
The FHA officially has no minimum FICO score requirement but many of the banks who lend the actual money have, at least for now, set a minimum FICO score requirement at 600. That means that if your middle score is below 600 you will probably need to improve your score or you will not qualify for an FHA loan.
Other credit issues that will disqualify you from getting a regular FHA loan
– A bankruptcy or foreclosure in the last 12 months
– Unpaid tax liens, judgments, or non-medical collections (Some medical collections are acceptable but non-medical collections must be settled/paid off)
Some resolutions to credit problems
When someone has credit problems these are the solutions we usually use:
1. Pay down credit cards. This is an easy way to raise credit scores. Simply bring your credit card balances down to less than 30% of the credit limit and your scores should shoot right up.
2. Document incorrect information. Credit reports often have incorrect information. If you can document that a reported outstanding collection has already been paid or that other derogatory line items are incorrect we can often get the information deleted or ignored.
3. Pay off outstanding collections, tax liens, or judgments. In many cases debt collectors will accept 40% of an outstanding debt as payment in full. When the number and size of collections aren’t overwhelming simply settling with the collector and getting paperwork to prove it is often the best approach. If there are a lot of collections we often refer people to companies that specialize in debt settlement.
4. Work with credit optimization professionals. When someone’s credit history is especially beat up with old late payments, collections, bankruptcies, etc. being reported, the fastest way to get qualified for an FHA loan is often to work with a credit optimization specialist. Keep in mind that using such a service only works if you are able to make all of your current payments over the period you are working on your credit.
If you have credit problems and would like to be referred to a reputable credit enhancement company please contact us in the sidebar.