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FHA loans may be particularly appealing to first-time home buyers who have a young credit history as well as people with more experience but a few credit blemishes. Part of the attraction can be attributed to the more lenient credit requirements associated with an FHA loan.

This blog post will go over what you need to know if you’re considering an FHA loan to buy or refinance a home.

Credit Score Required To Buy A House

Before we get into the credit requirements for FHA loans, it’s useful to take a step back and look at credit requirements in order to get a feel for credit dynamics in the mortgage industry.

For a standard conventional loan backed by Fannie Mae or Freddie Mac, you need a median FICO® Score of at least 620. It’s important to remember that there are three major credit bureaus who play a role in this process: Equifax®, Experian™ and TransUnion®.

Notice that I said “median score.” If there’s more than one person on the loan, it’s the lowest median credit score that counts. For example, if you have scores of 720, 690 and 650 while your significant other has scores of 660, 630 and 610, the score that counts will be 630.

The USDA doesn’t set a minimum credit score requirement, but lenders can set their own policies. For those looking to live in qualifying areas, the median FICO®Score required by Quicken Loans is 640.

Similarly, the VA has no minimum credit score policy in place. Again, it’s up to the lender. The median score required by Quicken Loans for a VA loan is 620.

Beyond simple qualification, your median FICO®Score plays a major role along with your down payment in the interest rate you receive. The higher your score and the higher your down payment, the better interest rate you can expect.

Minimum Credit Score Required For An FHA Loan

Technically you can get approved for an FHA loan with a median FICO® score of as low as 500, but there are some serious drawbacks to an FHA loan with a score that low.

The first is that you’ll need a down payment of at least 10%. Secondly, when qualifying with a score that low, it’s considered a subprime loan. What that means from a practical perspective is that even if you can get the loan, you won’t get the best terms and could end up with a much higher rate.

Finally, you have to have some very low qualifying ratios. In order to qualify with a median FICO® Score of below 580, you need to pay close attention to two ratios: your housing expense ratio and your overall debt-to-income ratio (DTI).

Your housing expense ratio is calculated as follows:

 DTI equation

The amount being spent monthly on housing expenses can’t exceed 31% of your gross income.

DTI takes into account all debts including your mortgage. That’s calculated with the following formula:

With a median FICO®Score below 580, your DTI can’t go over 45% of your gross monthly income. These two ratios have a major impact on how much house you can afford.

In addition to the restrictions laid out above, it’s important to note that very few lenders offer these subprime FHA loans. At Quicken Loans, you have to have a median FICO®Score of at least 580 in order to qualify.

The Benefits Of A Higher Credit Score

If you have a median FICO® Score of 580 or higher, the first benefit is that you’ll have more lenders competing for your business including Quicken Loans. Options mean better loan terms including more competitive interest rates.

Secondly, if your score is better than 580, you’ll only have to make a down payment of 3.5%. This could significantly open up your housing options. It’s worth noting that you’ll have mortgage insurance premiums for the life of the loan if you make an initial down payment of less than 10%. On the other hand, you’ll pay for mortgage insurance for 11 years with a down payment of 10% or more. However, one of the options you may have down the line in order to get rid of mortgage insurance is to refi into a conventional loan once you reach 20% equity.

If you have a FICO® Score of 580 but below 620, you’ll need to maintain a housing expense ratio of no more than 38% of your gross income and a DTI of no more than 45% in order to get an FHA loan through Quicken Loans.

If you have a median FICO® Score of 620 or better, higher DTIs are allowed than what otherwise might be allowed on many other loans. While there’s no hard maximum that applies to everyone, the DTI for borrowers with higher credit scores is based on your credit score range as well as the size of your down payment, among other factors. In no event will the FHA approve a DTI above 57%, but this could offer more budget flexibility than many other mortgage options.

FHA Credit Score Requirements May Vary

The credit scores and qualifying ratios we’ve mentioned in this post so far are either the minimums required by Quicken Loans or the FHA itself. Other lenders may have their own requirements including, but not limited to, higher FICO® Scores or a larger down payment.

In any case, we encourage you to shop around for the best loan terms and make sure you’re comfortable before moving forward.

Can You Get An FHA Loan With No Credit History?

If you’re applying for any kind of mortgage, including FHA, it’s a good idea to have at least two or three accounts open and reporting on your credit whether those are revolving accounts like credit cards or monthly loan payments. However, it’s possible to get an FHA loan with a thin or nonexistent traditional credit history. Before moving forward, there are some things you should know.

These loans are manually underwritten, and that means your mortgage process can take longer. In order to get an FHA loan with no credit history from Quicken Loans, you need to have a minimum of three nontraditional credit references. Those references have to include at least one of the following:

  • Utilities not reporting on the credit report (gas, electricity, water, cable or internet)
  • Telephone service
  • Rental housing payments

The other two references may come from any of the following:

  • Insurance premium that’s not payroll deducted (Medical, Auto, Life and Homeowners/Renters)
  • Child care payments
  • School tuition
  • Retail store credit cards (department, furniture, appliance, etc.)
  • Rent-to-own (furniture, appliances, etc.)
  • Portion of medical bills not covered by insurance
  • Car leases
  • Personal loans from an individual with repayment terms in writing that can be supported by cancelled checks
  • You can show a documented 12-month history of savings by regular deposits resulting in an increasing balance to the account. The account has to show at least quarterly deposits which aren’t payroll deducted. There should be no fees for nonsufficient funds.
  • You can also document a year’s worth of payments you made to an account on which you’re an authorized user. 

Finally, because you have no credit history, you’ll have to keep your DTI low. Quicken Loans requires a housing expense ratio no higher than 31% and a total DTI of less than or equal to 43%.

Learn More About FHA Loans

For more on FHA loans including the advantages of the FHA option and how it works, we invite you to check out this page on FHA loans.

If you’d like to see how FHA or another mortgage option could work for you, you can apply online with Rocket Mortgage® by Quicken Loans or give one of our Home Loan Experts a call at (800) 785-4788.

 

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This Post Has 405 Comments

  1. Hi, we’re looking to buy. What’s the best loan for someone like us? My wife had a credit score of 700, mine is just 620 and it’s getting better. We have about $40,000 in credit card debt. She’s the bread winner and makes $105,000 a year, i work part time bringing in maybe $20,000.

    1. Hi Clarence:

      If you want to use both of your incomes in order to qualify, you’re on the edge between being able to qualify for an FHA or conventional loan with your credit score. She would definitely have the option of looking into a conventional loan on her own. In your case, I recommend speaking with one of our Home Loan Experts at (888) 980-6716. They’ll be able to go over your situation in detail and determine what might work best. Thanks for reaching out!

  2. I need help! My parents recently passed away. long story short I am 1/3 shareholder to my childhood home! Its a double wide mobile home on 3.3 acres. its an older mobile home(1980) but has been TOTALLY remodeled. I want to just buy my brother and sister out. But don’t know where to start or who to listen to. my husband has pretty good credit and we have good income. the only thing we don’t have is a lot of $$$cash $$$ on hand. any info would be GREATLY appreciated!!!!!!!!!!!!!!!!!!

    1. Hi Tammy:

      That’s sounds like a great goal and I wish you luck! Unfortunately, at this time, we don’t do financing on any mobile homes. I’m sorry. I will tell you that there are specialty lenders you can find through an internet search who do this type of financing. They should be able to help talk you through what your options might be. Again, good luck!

  3. My wife and I have several credit card balances amounting to around $12,000, plus two auto loans. My bills are current and I have no delinquencies, but the maxed out credit cards have brought down my credit score.

    I will soon be in a position to pay off ALL of my accounts (around $45,000 including the cars). I have around $70,000 coming to me and I am looking for a FHA 3.5 % down mortgage to purchase a $150,000 house.

    After I pay everything off and have zero debt, do I have to wait at least a month for everything to show up on my credit bureaus? Or can Quicken Loans arrange for a re-score to get things moving sooner?

    1. Hi Dave:

      Every situation is different, but there’s a chance we can help you if you’ll have documentation supporting all these payoffs. I suggest talking to one of our Home Loan Experts at (888) 980-6716 as they can go over your situation and see if there’s anything we can do to get the ball rolling a bit sooner for you. We would love to work with you to go over your options for the mortgage. Have a wonderful evening!

    1. Hi Matthew:

      While we don’t offer any grants or down payment assistance ourselves for first-time home buyers, a good place to start looking is the Department of Housing and Urban Development (HUD). They maintain a list of programs available in your state or territory. We also have a first-time home buyer course, Zing University. If you’re interested in moving forward, you can get started online with Rocket Mortgage or give one of our Home Loan Experts a call at (888) 980-6716. Hope this helps!

    1. Hi Terri:
      The minimum credit score needed for an FHA mortgage is 580. However, every situation is different, and multiple factors will be considered. If you’d like to explore your refinance options, you can talk with one of our Home Loan Experts by calling (888) 980-6716.

  4. I have a credit score of 543 and 601 right now . I don’t have a long credit history but I recently purchased a vehicle back in June . I have one secured credit card from capital one since Aug. of this year . I’m on child support right now . I owe back c.s ($2700) that I’m catching up . I have the Attorney General increase my payments to pay it back faster . My take home pay is 4000 . The house Im looking at is 73k . Do I need to wait until my scores are higher or can I apply to QL now ?

    1. Hi Nathaniel:

      We take the median FICO® score from Equifax, Experian and TransUnion. That score has to be at least 580 or higher before we can help you with an FHA loan. It does sound like you’re doing the right things to get your credit in shape, but every situation is different. I’m going to recommend you check out QLCredit. You can get your free VantageScore® 3.0 credit score and report every two weeks. We also have this article with some general tips on building your credit back up. Finally, I recommend speaking with one of our Home Loan Experts as they may be able to help you come up with a personalized game plan to get you where you need to be in order to qualify. You can reach out to them at (800) 785-4788. Hope this helps!

  5. Hi I was wondering how long do I have to wait to buy my first home I just got my discharge papers from going Bankrupt 2 month ago and I would like to start working on buy a home in the next year or so thank you

    1. Hi Edwin:

      We would have an option for you as soon as one year after discharge and you would have more options after two or three years. Hope this helps!

  6. Does QL do FHA 203k loans? If so what are the odds of being approved with a 638, 696, 620. My credit report has had many things inaccuracies. I have been fighting for a year in a half now. It’s literally been a mess! I’ve had my credit completely erased, I’ve called and found out that OUR CREDIT REPORTING AGENCIES AREN’T EVEN BASED IN THE USA! I get it, we out source, however I couldn’t even help my husband because I have to follow the rules of their country, not ours. Most countries don’t use CREDIT REPORTING! ITS COMPLETE NONSENSE. Anyways, I make $86,000 DTI is 15%. House is $150,000. Foreclosure in really great shape but has chipping paint so has to be a 203k. We literally have to get financing ASAP!! Like a week ago. We have to have everything done and finance to the seller b4 July 21. Is this something that QL can do?

    1. Hi Jessica:

      Unfortunately, we don’t offer FHA 203K loans. I’m going to recommend you maybe speak with one of our Home Loan Experts. Every situation is different. It may be possible to get the house and then complete the repairs and have them reinspected. It’s not always allowed, but it’s worth looking into. You can give us a call at (888) 980-6716. Thanks!

    1. Hi Janice:

      We don’t talk about which FICO models we use because it depends on the bureau and it gets updated and a lot, so anything we might tell you would be soon out of date. I can tell you that we use a tri-merged credit report from Equifax, Experian and TransUnion. For an FHA loan, between the three bureaus, the lowest median score of all borrowers on the loan must be at least 580. If you would like to go over your options, I recommend speaking with one of our Home Loan Experts at (888) 980-6716. Hope this helps!

  7. Would I qualify for a cash out refi $10000 with credit score of 609 est value is 85000 current loan amount 55000? Home is in need of some repairs and don’t have $10 grand laying around.

    1. Hi Melissa:

      I see you’re working with one of our partners. I’m going to have someone reach out and go over how we can you to your goals. Thanks!

  8. hi mt name is middi i thank my credit score is 626 i want to buy a fixer upper and have my brother -in law do construction on it, and after rent it out . i have a car payment that i have paying it before it is due every month on the third. with just me geting the loan n not my husband co-sign would i qualify thank you god bless

    1. Assuming you’re right about your credit score, you would qualify based on your credit, but there’s more to qualification than that. If you would like to go over your options, you can do so online through Rocket Mortgage or by speaking with us at (888) 980-6716. Hope this helps!

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