FHA Discussion

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FHA Loan with a 620 Credit Score

FHA Loan with a 620 Credit Score

fha loan with a 620 credit score

If you have a 620 credit score, there are mortgage options for you when trying to purchase or refinance a home.

Some lenders have credit score minimums that are higher than 620 but do not let that discourage you. That simply means you have been speaking with the wrong lender and you are experiencing what is referred to in the industry as a “lender overlay”.

Qualifying for an FHA loan with a 620 Credit Score

The following are the basic guidelines to qualifying for an FHA loan even with a 620 credit score. If you meet all or most of these requirements, then you have a good chance of getting approved.

  • Minimum FICO score requirement of 500 – down payment will vary
  • Minimum down payment requirement of 3.5% – 10%
  • Mortgage Insurance Premium (MIP) is required for every FHA loan
  • Maximum debt to income ratio of 56%
  • The home must be your primary residence
  • The borrower must have a 2-year work history with steady income
  • The Home must pass FHA inspection

If you believe or are not sure of you meet the requirements above, then let us help you to get that approval. We also suggest you read our article on the FHA loan requirements.

How to get Approved for an FHA Loan with a 620 Credit Score

When seeking an approval for an FHA loan, a lender will need just a few basic things to get started. You will have to provide them with the following items:

  1. Your annual income
  2. Your last pay stub
  3. Your last month’s bank statement
  4. Your approval to pull your credit report

With these four things, any lender should tell you whether you are pre-approved. For more information, read our article on how to get approved for an FHA loan.

Getting Denied for an FHA Loan with a 620 Credit Score

Simply having a 620 credit score will not guarantee you an approval for an FHA loan even if you also meet the rest of the basic requirements for an FHA loan.

Lenders also review your credit report and credit history in detail and one or more items on your report could result in the lender denying your FHA loan approval. Some of these issues are as follows:

Chapter 7 bankruptcy less than two years from discharge

  • More than one late mortgage or rent payment in the past 12 months
  • A recent car repossession
  • Too many collections
  • A prior or current mortgage in forbearance
  • Other late or delinquent payments on your credit report

This means that lenders look at more than just your credit score. What is on your report is equally as important. In some instances, you may have no outstanding issues on your credit report but the agencies are still reporting a low credit score. An experienced loan officer can help you to overcome this problem.

Other Compensating Factors to Help with Your FHA Approval

Your credit score is just part of the equation when a lender’s underwriter is reviewing your loan application. They look at other things called compensating factors which can help with your FHA loan approval. Here are just a few examples:

  • Low debt to income ratio or high income
  • Large down payment
  • Significant amount of cash reserves
  • No payment shock from prior mortgage or rent payment

Experienced loan officers will be able to position your application in front of the underwriter to highlight the positive compensating factors in an effort to overcome a lower credit score. This is especially true of you meet the rest of the FHA guidelines for a loan approval.

 

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