When we speak to prospective home buyers who are interested in applying for FHA loans, credit score is often the first topic they ask about. They want to know if FHA loans have a minimum credit score requirement, and whether that requirement is still lower than what is typically required to qualify for a conventional loan. Although Wholesale Capital Corporation is not affiliated with or acting on behalf of or at the direction of the Federal Housing Authority (FHA) or any government agency or government-sponsored entity, the answer to both questions is yes. Now, let’s address some other common FHA loan questions.
Q: What is the current minimum credit score for an FHA loan?
A: Depending on where you are applying, the minimum credit score for an FHA loan may range anywhere from 550 to 640. At Wholesale Capital Corporation, we typically require FHA borrowers who make the FHA’s minimum 3.5% down payment to have a minimum credit score of 580; borrowers who make a 10% down payment may be able to qualify with a lower score. There are certain FHA programs that may be recommended to credit-challenged borrowers; in California, for example, one program that may be an option is CalHFA. Your WCC loan officer can explain if this or any other programs apply to you.
Q: If a borrower has received a prequalification, does that mean their credit score is sufficient for an FHA loan?
A: Not necessarily. A prequalification can be written by anyone, including a third party who has nothing to do with the lender originating the loan. A prequalification is an initial screen based upon unverified basic information the borrower has given the lender. Instead of a prequalification, a borrower should seek out a preapproval. A preapproval involves the lender gathering additional information about the borrower, including a credit report, which would include your credit score. In some instances, a borrower may also be asked to provide many of the same documents that will be required to complete the actual loan process, such as tax returns, bank statements, and employment verification. However, a preapproval is not a commitment to lend. Unlike a prequalification, a preapproval is written explicitly by the lender.
Q: Is it true that unpaid credit balances “fall off” a credit report after seven years?
A: No. The only way to ensure that negative strikes on your credit go away is to pay them off.
Q: How can people who do not yet qualify for an FHA loan improve their credit in order to qualify?
A: Paying your bills on time is the first and most important step. This is what ensures that none of your accounts head to collections (and subsequently, to your credit report). Next, work to clean up any old delinquencies you see on your credit report; again, these will not just “go away” after any specific period of time. Credit bureaus look at three factors – recency, frequency and severity – when it comes to how your delinquencies will affect your score.
Also, be sure to ask that any erroneously reported credit information (like an account that appears on the credit report twice) is removed. If the score is still insufficient for qualification, obtain a fresh credit account and pay your balance off every month. This should raise your score, show the lender that you can manage your debt properly, and eventually secure your qualification for an FHA loan.
And finally, be sure to consult with a lender before you make these attempts. The reason for this is so that a loan officer can review your existing credit report with you and give insight on improving your credit score. To do this, contact Wholesale Capital Corporation at (855) 640-2020 and ask to speak with a WCC loan officer. We will be glad to speak with you.
Wholesale Capital Corporation is not affiliated with or acting on behalf of or at the direction of the Federal Housing Authority (FHA) or any government agency or government-sponsored entity. WCC is licensed by the California Bureau of Real Estate, Real Estate Broker License #01147747 and the California Department of Business Oversight, Finance Lenders License #603K610. Also licensed in Arizona by the Arizona Department of Financial Institutions, MB #0926199. NMLS #9873. Equal housing lender.