Importance of credit score for FHA

[sr383]

It looks like my wife and I are going to make an offer on a Fannie Mae HomePath house that is in the First Look period. We'd be putting 3-4% down and financing FHA. The loan would be under my name/credit only.

Scores from MyFICO are 745 EX, 743 TU, 776 EQ. I'm pretty sure I could push EX or TU past 760 if I brought my CC allocation down from 28 percent to less than 7 percent.

Question: Is there any advantage to doing this, if I'm going FHA. Would my rate be the same with a mid-score of 745 as it would be with one of 760+?

[Amythyst]

Your rate would stay the same as long as you meet the minimum score requirement which is typically 640.  So, if you have a 640 or an 800, same rate.

[frugalQ]

credit scores affect interest rates.  I believe 760 is the score needed to get the best interest rate....but, it may be 720.

[Amythyst]

Credit scores do not affect interest rates for FHA.  Everyone gets the same interest rate as long as they meet the minimum score which is usually 640.

[frugalQ]

oops...

i'm just noticing that it says 'for FHA'.  You know, reading IS fundamental. 

My apologies.  Credit score directly impacts rates for conventional loans.

[aussiesareforever]

Why don't you go conventional. I had a 720 middle score and qualified for a 3% down conventional loan. It will save you more money in the long run

[sr383]

I've been thinking along those lines, I might even hit the 401k hard and cough up a full 20%--but I don't relish the penalties. 

[aussiesareforever]

You generally DON'T have to be penalties when you withdraw early from a retirement plan to purchase a home. Check with your financial advisor but I am pretty sure that is the case. You can also get a loan from your 401K that you can pay back

Even if you only put down 5% on a conventional loan, you still save a ton of money in upfront mortgage insurance and lifelong MI.

[basballguy]

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@aussiesareforever wrote:
You generally DON'T have to be penalties when you withdraw early from a retirement plan to purchase a home. Check with your financial advisor but I am pretty sure that is the case. You can also get a loan from your 401K that you can pay back

Even if you only put down 5% on a conventional loan, you still save a ton of money in upfront mortgage insurance and lifelong MI.

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this is incorrect.  The only way to avoid paying the 10% penalty is to put the money in an IRA before you cash it out (or something along those lines)...but even that process has a 10k limit.

If you take a distribution to purchase your home....you pay the penalty.

[aussiesareforever]

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@basballguy wrote:

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@aussiesareforever wrote:
You generally DON'T have to be penalties when you withdraw early from a retirement plan to purchase a home. Check with your financial advisor but I am pretty sure that is the case. You can also get a loan from your 401K that you can pay back

Even if you only put down 5% on a conventional loan, you still save a ton of money in upfront mortgage insurance and lifelong MI.

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this is incorrect.  The only way to avoid paying the 10% penalty is to put the money in an IRA before you cash it out (or something along those lines)...but even that process has a 10k limit.

If you take a distribution to purchase your home....you pay the penalty.

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10 K is a lot of money, it could very well be all the OP needs to make a 20% deposit on his home. And he can always take a loan from his retirement fund and not have to pay the penalty