FHA Home Loan Questions: FICO Scores

FHA Home Loan Questions: FICO Scores

A reader got in touch recently in the comments section to ask a question about FICO scores and FHA home loan applications.

“My new wife’s credit score is 749 and mine is 620 due to an ugly divorce and transfer several years ago. We make over 287K per year with very little debt. Would we qualify for a loan together with a favorable rate? All debt paid except car loans.”

This question implies that FICO scores are the deciding factor for an FHA loan approval decision, and while credit scores are very important, they are not the only factor taken into account by the lender.

When you apply for an FHA home loan, the lender will examine not just your FICO scores, but your history of payments–especially those made in the last 12 months. Late or missed payments on any financial obligation 12 months before the loan application can hurt your chances at loan approval even if your FICO scores are good.

This is because the lender is looking for patterns of fiscal reliability–and those patterns are established by your payment record. FICO scores can’t be discounted as a major factor in your home loan, but in the last 12 months your loan officer will be looking for further evidence that a particular borrower is a “good credit risk”.

The reader mentions two FICO scores–one of which is higher than the other. The lower FICO score–620–may be within the acceptable range for some lenders, and for others it may be slightly lower.

A 620 FICO score may not be a barrier to loan approval, but it may influence other aspects of the loan including the interest rate. There are many factors at work that may determine how FICO scores at 620 or below are interpreted by the lender–those include lender standards and the other aspects of a borrower’s credit history.

If it seems as if the issues related to FICO scores are handled on a case-by-case basis, that’s because no two home loan applications are alike and lenders must review the individual details in order to make a determination. Much can depend on other factors including your payment history, state law, how much of a down payment you are making, etc.