Minimum Score Requirement FHA/USDA

[xazilizax]

If two people would like to buy a house together, would they get approved for USDA or FHA and for as much as $140,000?  The house they would like to purchase is a brand new builder's home.

--Middle credit scores are above 660

--No down payment

--First person makes $30k/yr and has stable job for the past 4 yrs.  Second person makes about $30k/yr, but is an independent contractor with stable job for the past 3 years.

Would they have any issues?

[JMN]

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@xazilizax wrote:

If two people would like to buy a house together, would they get approved for USDA or FHA and for as much as $140,000?  The house they would like to purchase is a brand new builder's home.

--Middle credit scores are above 660

--No down payment

--First person makes $30k/yr and has stable job for the past 4 yrs.  Second person makes about $30k/yr, but is an independent contractor with stable job for the past 3 years.

Would they have any issues?

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You should be alright, score and income-wise.

As for contract work... it usually is considered, as long as you have several years of history, which it looks like there is, and as long as it's reported properly on federal tax returns.

As for no downpayment... that's harder to find. Usually 0% down require higher scores, so you may need to see if you can work with an FHA 3.5% down.

[bruiseviolet]

Your scores should be fine for FHA-  Your income should be fine as well.  They want to see last 2 years of tax returns (first 2 pages, and then copies of your schedule c(s)(These are the profit and loss statements you file for self employment with taxes).  They also are probably going to require last 3 months of bank statements- 

As for the downpayment- that might be what gets you.  Start saving- most lenders etc.. are going to want to at least see you can make the payments for a few months (ie- want to see monthly mortgage payment put into savings each month.)  I believe FHA has a 3.5% down or something?  There are other programs that help with zero down- but they are mostly government programs and sometimes not worth the hassle.  (Ie- you'r better off taking the next 3 months to save downpayment and buy vs. applying and waiting on the government program).  You can apply for Rural Housing through USDA_ however there are a lot of stipulations.  (House must be in selected rural areas, has to pass a home inspection by USDA, takes weeks to get approved, takes months to get a house even though they only give you a certificate good for 3 months, cant be in an associatio, can't have ANY collections unpaid on credit report- need to be paid off either 6 months or 12 months prior to applying etc... etc....  but they do 0% down and something like 1% interest- also if something unforseen happens (job loss, injury, family death etc...), they will let you put off payments for up to two years.

Also you probably will have to pay off collection accounts before they will lend you the money.  That is often a stipulation- especially if you have any judgements.  

[xazilizax]

I looked up the USDA credit requirements and here is what I found for people with 620 score and over.  Only people with a low credit score, such as 580 and below is where they look at collections and so on....

If anyone would like to know more about the USDA Loan Credit Requirements, here is the site I found, which is updated.

http://www.usdahomeloanprogram.com/credit-requirements.html

USDA Home Loan Streamlined Underwriting Criteria (620 Credit scores and higher)

For borrowers with a credit score of 620 or higher, lenders may use USDA‘s streamlined underwriting guidelines, to evaluate the loan.

• Lenders are not required to document adverse credit histories, excepting those involving a delinquent federal debt or previous agency loan.
• Lenders are not required to obtain a rental history rating.
• No action will be needed on any derogatory items, (i.e. no letters of explanation, unpaid collection accounts not required to be paid off, etc.)
• The credit score of the primary income producer will be given the most weight; however, credit scores of other applicants will be included in the review of the loan request. The middle of the 3 scores or the lower of 2 scores for all borrowers will be used.

[raleighmortgagegals]

Minimum score requirements for FHA/USDA are a dynamic process.

FHA/USDA set minimums they will accept.

Individual lenders set (and reset) their own minimums.  Their minimums will be equal to or greater than FHA/USDA.  It cannot be less.  It's their money and they determine how much risk they are willing to accept.

Just within my office it differs.  Under certain circumstances I can do an FHA loan with a 580 score.  It's 620 under different circumstances.  Bottom line: you have to speak with a loan officer to find out what his/her company is willing to do.

[doublespaces]

From my experience, the only person with a 580 thats getting approved is someone with limited credit history causing a low score, not poor credit history causing a low score.

[Booner72]

Hi - I'm trying to reply w/ a quote but it won't work.  You mentioned that only w/ people with low credit scores is where they look at collections.

That is absolutely not true at all.  They would look at collections on every single application.  It's whether or not they approve them  or not, whether they have to be paid, compensating factors such as income etc.  And you need 12+ months of clean credit - meaning no derogs (lates collections, etc) within the last 12 months.  That's pretty standard for any kind of loan.

I have never not once ever read of anybody getting approved with a 580 credit score, or even less than 620.    This just means you have some work to do.  .  It's good to figure out what you need to do and how long it will take, and then go from there armed with all the information you can obtain.

[Anonymous]

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@xazilizax wrote:

I looked up the USDA credit requirements and here is what I found for people with 620 score and over.  Only people with a low credit score, such as 580 and below is where they look at collections and so on....

If anyone would like to know more about the USDA Loan Credit Requirements, here is the site I found, which is updated.

http://www.usdahomeloanprogram.com/credit-requirements.html

USDA Home Loan Streamlined Underwriting Criteria (620 Credit scores and higher)

For borrowers with a credit score of 620 or higher, lenders may use USDA‘s streamlined underwriting guidelines, to evaluate the loan.

• Lenders are not required to document adverse credit histories, excepting those involving a delinquent federal debt or previous agency loan.
• Lenders are not required to obtain a rental history rating.
• No action will be needed on any derogatory items, (i.e. no letters of explanation, unpaid collection accounts not required to be paid off, etc.)
• The credit score of the primary income producer will be given the most weight; however, credit scores of other applicants will be included in the review of the loan request. The middle of the 3 scores or the lower of 2 scores for all borrowers will be used.

We got a USDA guranteed loan with a 642 mid score and DID have to have a LOE and rental history.  The USDA may not require those things but the the bank did require them.

[xazilizax]

That's awesome.  Good for you.  I know I have excellent rental history.  What is an LOE?

****People, in my last posting of the USDA credit requirements, please don't think I came up with anything on my own.  It's what I got from the USDA site, so don't jump down my throat saying I'm wrong about anything.  None of it is "what I think". 

[raleighmortgagegals]

As branch manager of a mortgage company and we have done FHA with score between 580 and 620.

I thank you veggs2000 for the USDA research.  I invite everyone to read it again.  The key words are "not required."  That's the MINIMUM standard.  All lenders evaluate their risks (it's their money) and often set a HIGHER standard.  They can require borrower "document adverse credit histories", "obtain rent history rating", etc.

Lender can set a higher standard than USDA.  Lender cannot set a lower standard than USDA.  Same applies to FHA.