According to the FHA underwriting manual, the minimum credit score for a 203b & 203k loans may be as low as 500. The down payment requirement for applicants with a credit score of 500 up to 579 (including co-borrowers) is 10%.Applicants with a credit score above 580 must meet the minimum down payment of 3.5%.
Mortgage companies are required to obtain three credit scores when available. One credit score from each credit agency (i.e. Equifax, Experian, Transunion). The median (middle) score is used to determine the borrower’s credit score. When only two scores are available, the lower score of the two is chosen, when only one is available, that score is used to determine FHA eligibility.
For example:
Equifax - 620
Experian - 640
Transunion - 680
The credit score of 640 is used for eligibility because is in between 620 and 680.
Even thought the Federal Housing Administration is very liberal with regard to credit score requirements, this does not mean that the applicant will necessarily qualify for a FHA loan. FHA approved lenders provide the FHA mortgage money . . . not the FHA. Many FHA lenders are adverse to offering FHA loans to applicants with a credit score below 620. Only a few lenders offer FHA loans to applicants with a credit score of 580 or lower.
Applicants without a credit score or credit history are permitted to obtain an FHA home loan. In fact, the FHA states in the FHA underwriting manual the following:
The lack of a credit history, or the borrower’s decision to not use credit, may not be used as the basis for rejecting the loan application. Reference - FHA manual
Lenders must use rent, utilities, auto and/or car payments, etc. to determine credit worthiness.
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