In the last 3 to 4 months many mortgage companies have increased the minimum credit score needed for an FHA loan. It is no surprise this is happening but I have not seen a much of a drop in volume due to increased minimum credit scores. It won’t be too long until the minimum is 620. What I am seeing are borrowers who have higher credit scores not being approved because FHA wants to see borrowers have a little in savings after closing. This is called ‘reserves’ and all it means is that after the borrower closes on a home loan they have a month or 2 of their monthly mortgage payments saved up.
Having a few months in ‘reserves’ will make a big difference for getting approved for a home loan or not. In the last week I have seen this first hand for two different borrowers. The first borrower has a 615 credit scores but has no money for reserves. I could not get his application approved for a FHA loan. If he had 2 months in reserves he would be approved. The 2nd borrower has a 589 credit score and had 3 months in reserves and was approved or a FHA loan.
Both borrowers are working on increasing their credit scores to get lower interest rates and the first borrower has actually asks his parents to gift him some money so he can have enough for the down payment and 2 months of reserves then he will be approved for the FHA loan.
For Borrowers with less than 580 credit score you need to get in and talk to me about increasing your scores. It won’t be to long before the minimum credit score for FHA loans 620. Call contact me today!!
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