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Questions for FHA loan with low credit score.


Questions for FHA loan with low credit score.

Hi everyone,
Recently my girlfriend and I have been tooling with the idea of a home purchase. We are just in the planning stage, but I had some questions/concerns. Here are the facts;

She works as a CSR for TD Bank, I own a golf instruction business and work for our township at our municipal golf course. She has been with the bank for almost 4 years and had several promotions with increasing income. I have worked for the golf course for a and a half with a promotion back in February. Before that and still currently I own a golf instruction company but didn't make enough money to taxes those years, I was filled but listed as a dependant on my parents taxes since I live at home. However with my new position at the golf course that will change.

In terms of credit scores. Unfortunately neither of ours is great. Currently mine is 572, but believe that will go up because of a unpaid medical bill that was actually paid and has since been submitted for deletion from the collection agency. Hers is around 580, with some past late payments on CC but since have been paid in full and closed. She also has some unpaid medical bills. I know these scores are a bit low but we are both very reasonable with money, I just have not had a chance to build credit. I since have a secured credit card but it has only been open a few months, no late payments, normally paid down in full each month.

DTI, with that said.. I'm not sure if medical debit is included in this? I don't believe it is since there is minimum payment on it each month? Either way, that is her only debit. I have none. No student loans, or auto loans. We both own our cars outright. Our income each month is around 2000. The medical debit is around 1200.

In terms of a down payment, I have a decent amount of savings set aside but would probably for a smaller down payment if possible. Not sure how much of a house we are looking at. Not even a clue what we would be able to be approved for on a 30 year fixed. Not even sure if a FHA loan is the best option.

I appreciate any advice, thanks, Chris.
Message 1 of 5

Re: Questions for FHA loan with low credit score.

Realized that for whatever reason swipe on my phone changed all of Debt, to debit, not sure why. Couldn't figure out how to edit the original post. Sorry for the typo's.
Message 2 of 5
Frequent Contributor

Re: Questions for FHA loan with low credit score.

Well, let play it safe.   I read on here that Wells go as low as 580.  That can be good, if you have the funds to put more down. And most lenders won't look at you or even have a phone conversation with you.  I closed with a 663 with 3.375% as Primelending and most companies mininum score for THEIR approval is 620.  If you can shoot for a 640, you are more than likely going to be given a green light through the automated underwriter system (among other overlaying the company may have). 


With my score, plus my DTI was 51%, I was given the "dot your I's and cross your T's syndrome, but again, my DTI was an issue for a while.  Do what I did, stay in the website, read as much as you can, and get your score up, goodwill any collections or late payments you may have..Oh, try not to have no late in the last 12 months of closing or applying.  (others may chime in).  I seen here that it was a deal killer with lates, for others, it wasn't an issue.  Remember, the higher your score, the less overlays you will encounter.

5/30/15 EQ 596; TU 605; EX 580.
12/18/17 EQ 646; TU 660; EX 674
Message 3 of 5
Established Member

Re: Questions for FHA loan with low credit score.

Hi there. My husband and I are just about to close on our first home using an FHA loan. We started planning to buy a home about a year ago and we started out with some credit problems. My score was in the 640s, mostly due to high utilization on my CCs. My husbands was about 580, due to medical bills that were unpaid. I am most certainly not an expert, but these are the steps that we took and we went from scores of 580 and 654 to 623 and 675 in a little over four months.


1. Pay down your debt. See if you can get any of your creditors to delete the negative marks on your report in exchange for payment. We didn't have a lot of luck with this, but some people do and it's worth a try.


2. Meet with a mortgage broker. We found an awesome broker that was willing to sit down with us review our reports and income and give us his recommendations and a very good idea of how much we could be approved for and what our payments would be at different price points. Once we new that we were able to focus our attention on getting those things taken care of and we were also able to start looking at MLS databases for the area and going to open houses for properties in our price range, so we knew exactly what we could afford and what sacrifices we were going to have to make. For example we of course wanted a newer or updated house with a master suite and a nice yard...we couldn't afford that.  It made searching for the right home much easier because we were more aware of reality and not imagining that we were going to find our dream house. We were able to find a beautiful brand new townhome with all of our needs and wants except for the private yard. But knowing we couldn't get it all, made being able to decide what to sacrifice much easier because we had already had the time to prioritize our wants list. We also realized that we didn't want to buy something at the max of our approval because while we could technically afford it, it would be tight and we wanted to be able to afford to put money in savings, and go on vacations sometimes, etc. We ended up going about 25k below what we were approved for. 


3. Once you have done what the broker suggests as much as you can, interview more loan officers. We met with 4. They all had similar requirements, but they were not the same. The first broker we met with required a 640 credit score. We found two that said they would accept 600 and up (one was Well Fargo though, and I hear that they say they will go as low at 600 but very rarely do), and finally the LO that we chose which said we needed a 620. We were pretty sure that my husband's score was at least close to that, so we went ahead and applied with him. Before you apply make sure you have any and all financial documents (bills, rent verification, tax returns, pay stubs, W -2s) because you will need them. Also be prepared to explain your credit problems and do a lot of waiting and worrying, lol. 


From our experience I believe is that it is almost impossible to get a mortgage with a score below 600. I have not heard of anyone that will actually go lower, and that at least to do FHA you need at least one year of clean credit history, no lates, no new collections. 


Hopefully this is helpful. I found that researching, reading forums like this, and browsing for home kept me focused on my goal and made things much easier when we were applying because I knew what to expect and I knew what our challenges would be. We are now waiting on one more document (we had one condition we had to meet and it was to pay off one account and show documentation that it was paid), and waiting for the house to be completed, it should be done this week, eek! We will hopefully be closing next week. 


Good luck!


Message 4 of 5

Re: Questions for FHA loan with low credit score.

Thank you for the replies! For myself at least is seems more like a lack of credit history, not so much credit problems. Things that I guess only time will build.
Message 5 of 5