Can Your Credit Score Affect The Home Buying Process for an FHA loan?

Jamie Ayala

Jamie Ayala

Jamie Ayala has been working as a Loan Processor at Rock Mortgage for more than 4 years. As a knowledgeable account executive he has had many years of customer service experience in the loan, information technology, and political industries. Recognized for demonstrating a natural aptitude for working with cross-functional teams, as well as for meeting deadlines and validating loan documents, Jamie has a verifyable history of consistently exceeded sales and performance goals. His professional focal points include loan processing, client negotiations, team collaboration, and project management.

FHA loans are one of the most popular loans for homebuyers because they have various benefits such as:

  • Having low requirements
  • Being insured by Federal Housing Administration (FHA) 
  • Lower down payments (allowing you to borrow up to 96.5% of the home’s value) 

But can your credit score affect the home buying process for an FHA loan? Throughout this article, we’re going to walk you through everything you need to know regarding how your credit score affects FHA loans. We’ll also look at the different available down payments on FHA loans – to give you an idea of which ones you are eligible for. 

About FHA Loans and How They WorkFirst Time Home Buyers Houston

FHA loans are US mortgages that the Federal Housing Administration insures. The lowest available down payment on an FHA loan is 3.5%, for which you do need to meet a credit score requirement (more on this later). What type of credit score depends on what type of FHA loan you want to get. Generally speaking: The lower the down payment, the lower the credit score you need. The lender will likely also look at your finances, such as your debt-to-income ratio (DTI) or overall income. 

Keep in mind: With an FHA loan, you don’t borrow the money from the FHA. Instead, you borrow it from an FHA-approved mortgage lender, but the FHA guarantees it.

Minimum FHA Loan Credit Score Requirements

Compared to conventional loans, the credit score requirements for FHA loans are much lower. Loans with a down payment of 3.5%: For an FHA loan with a 3.5% down payment, you will need a credit score of 580. Loans with a down payment of 10%+: If you plan to get an FHA loan that requires a down payment of 10% or higher, you will only need a credit score of 500. Not sure what your credit score is or whether you meet the requirements? Get in touch, as we are ready to assist you.

Which Credit Score Is Used? 

FHA-approved generally looks at your FICO score. However, if they get access to your other credit scores, such as your VantageScore, they will use the average of your scores.

Quick Tips To Improve Your Credit Score

If you fall short of the credit score requirements for an FHA loan, keep in mind that you can improve your credit score with the right approach. It may also just be a case of paying off your existing debt and being patient to improve your credit score. 

Identify & Dispute Negative Items

Negative items can drag your score down from 90 to 200 points – meaning they are pretty significant. The good news is that you can dispute them or ask the lender to remove them if it was a one-off. For example, if you have a late payment, you could ask the lender to remove it as it was a one-off mistake and set up the auto-pay feature going forward.

Make Regular On-Time Payments

Your payment history accounts for around 35% of your credit score. Meaning: Making on-time payments and never being late or missing one goes a long way. This may take some time, but it’s bound to improve your credit score. Plus, credit length is also an essential factor, which means getting the credit score you need may just come down to patience. 

Increase Your Credit Limit

Your credit utilization ratio, i.e., how much of your available credit you are using – is also one of the most critical factors. If you request a credit limit increase, it could have an instant positive effect on your credit score. 

Why Might You Get Rejected From an FHA Loan? 

Credit rating

Although the requirements for an FHA loan are much lower than a conventional loan, you may still get rejected. The most common reasons for this include: 

  • Not checking all your credit scores: If you only check your FICO score, but the lender uses your VantageScore as well – you need to ensure that your average meets the credit score requirements.
  • Bad debt-to-income ratio (DTI): Although you may be planning to get an FHA loan with a larger down payment, the lender still will often look at your debt-to-income ratio. If your existing debt is too large, they may reject you. 
  • Overall insufficient income: You may have the down payment saved, but the lender can still reject you because your income is insufficient. Ensure you consider this before applying.

How Long Does an FHA Application Take? 

Usually, an FHA loan application process (from application to closing) will take around 30-60 days. The exact time depends on which loan you are applying for, and how many applications there are at a given time. 

What Else Should I Keep In Mind When Applying For an FHA Loan? 

We also wanted to walk you through some of the other things you should consider when applying for an FHA loan. If you get an FHA loan with us, our team will walk you through the application process.

Loan Limits

The FHA reserves these loans for buyers who need them, so there are limits to what type of property you can purchase with them. The limits depend on whether you are applying for a family home or as an individual. Plus, it also depends on how much properties cost in your area. As a basic guideline, we have included two tables below. 

FHA Limits (Low-cost areas)

Single Duplex Tri-plex Four-plex
$356,362 $456,275 $551,500 $685,400

FHA Limits (high-cost areas)

Single  Duplex  Tri-plex Four-plex
$822,375 $1,053,000 $1,272,750 $1,581,750

Source: FHA 

General Requirements

FHA loans do have a few general requirements that you shouldn’t forget about as well. Here are some of the requirements you should keep in mind: 

  • Proof of Social Security Number
  • Driver’s License
  • Proof of Employment
  • Federal income tax returns from the past two years
  • The loan must be for a property that will be your permanent residence 
  • Bank Statements

There may be additional requirements if you are refinancing, such as notes and deeds from other mortgages. 


At Rock Mortgage, we help find the loan that suits you. Our team has received a 97.9% recommendation rating over 150+ reviews and counting. We guide you through the entire application process so you can purchase your property with confidence. Whether you aren’t sure about the down payment or already have a specific type of loan in mind – please get in touch with us for more information & assistance. 

 

First Time Home Buyers Houston

Can Your Credit Score Affect The Home Buying Process for an FHA loan? | Rock Mortgage — Houston, Texas