CREDIT SCORE BELOW 640?
It can still be done. A credit score under 640, is approvable for an FHA insured mortgage.
For emergencies or urgently required service, please
1-631-486-3735 to be directed to a mortgage
specialist "on call".
Why a credit score below 640 often does not qualify for
an FHA loan.
Traditionally a 640 credit score was the standard for
qualifying for a conforming mortgage.
However, today, most FHA lenders seem to have adopted this 640 score
requirement into their FHA guidelines.
There is a common misconception about how the financing of
an FHA loan actually works. Most people
think that the government is actually lending them the money. Although the lender must be approved by the
federal government to make FHA loans, the government is actually only insuring
the loan. It is the lender that must provide the
funds for the loan.
As such, most lenders are subject to the guidelines that are
placed on them by the investor source providing the money.
Wall Street seems to be controlling much of this. Since the fall of the subprime market,
mortgage back securities and their decision makers have adopted much stricter
guidelines for financing "credit challenged" borrowers; even for FHA insured
HUD does not reference any credit score requirement for
approving financing for an FHA insured mortgage. Again it is the money sources and/or investors
providing funds for the lenders that is placing these 640
credit score requirements on the system.
There are lenders providing FHA insured mortgages with
credit scores under 640. Some FHA
approved lenders will go below 600.
There are a very select few that will approve borrowers with credit
scores of 500 and up. In the few cases
seen, a score of 500 is required for a refinance and a credit score of at least
531 is required for a purchase.
FHA insured mortgages seem to have become more popular in
today's market. There are several
reasons for this.
Although these mortgages have not replaced many of the
programs lost with the fall of the subprime market, FHA insured mortgages are
provided quality financing for many people whom might have otherwise become
prey from the less desirable subprime interest rates and pricing.
FHA guidelines and requirements are different from the many
of the former subprime programs in that:
and foremost, FHA insured mortgages provide low interest rates for many folks
with less than perfect credit. This loans are usually provided with a 30 year fixed rate
insured mortgages can provide 96.5% financing for folks trying to purchase a
home. Negotiate a sellers concession to
pay toward closing costs (up to 6% of the purchase price), and borrowers with
challenged credit can often find themselves purchasing their dream home for as
little as 3.5% down.
primary concern seems to be housing payment history. If your mortgage and/or rent has been paid on time for the past 12 months, you are
usually off to a good start in the underwriting process. However, the are
other criteria to meet.
score is not supposed matter per FHA guidelines so credit score below 640, 600
or even 580, should not matter. However
much of the private sector money that actually funds FHA insured mortgages
often puts minimum credit scores before other qualifying requirements. As such, finding the right lender will be key if your credit score falls under 580, 600, or even 640.
must always be provable and real. IRS
form 4506 is required to be signed. As
well the IRS form 4506 is processed on virtually every FHA insurance loan
underwritten. Transcripts from the IRS
are pulled on just about every FHA insured file to confirm borrower income and
actual income tax filings for the past 2 years.
employed borrowers are also required to provide a YTD
P&L Statement (year to date profit and loss) prepared by a verifiable CPA.
to Income ratios are usually strictly set at 43% back end, with FHA
compensating factors making allowances up to 46% if reserves can be provided.
previous mortgage payment history is perfect and LTV is low, (less than 65%),
sometimes stable income will qualify for 50% DTI on an FHA
co-borrowers, in effect acting as FHA co-signers can often be added to the loan
to improve debt ratio on borrowers that are in the 55% DTI range without the
income, "no-ratio" and/or "no income check" mortgages are strictly forbidden on
any FHA insured mortgage.