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I heard that yesterday FHA raised their minimum score to 640 instead of 620?

  • July 14 2009 - Lincoln
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Answers (9)

Hello I work with several very good lenders who can still get an FHA loan approved with a 620 FICO. With that being said they also let me know it may not be available in the near future as things continue to tighten in this current lending market.
  • July 15 2009
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Excellent posts/answers by Norm, Lynda, Andrew and Tim!
  • July 15 2009
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"None of these lenders including us are actually lending their own money. They take out short term loans (warehouse loans) until they can re-sell the loans to an end investor/servicer"

That's a rather broad (untrue) statement. It may apply to many or most lenders, but not to all lenders.
  • July 15 2009
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Jackson,

Your warehouse line explanation doesn't really make sense in regards to the availability of low FICO FHA sources.

Fewer and fewer lenders are offering low fico FHA loans.  The lender that is buying the loan doesn't care about the lender that is selling the loans warehouse line.  I agree that the warehouse lenders are in a tough spot and many of the Warehouse lenders are canceling or not renewing lines.  however I don't see how that has any impact on what Chase, Wells Fargo, BoA, GMAc or CITI will buy.

The logical reason why fewer and fewer lenders are offering low fico FHA loans is simply that as those that offer it shrink the ones that still offer it end up with a bigger share of the higher risk loans.  As the lenders portfolio continues to grow and the % of low FICO loans increase the risk to the portfolio increases and at some point the lender will not want the additional risk and they up the min fico.  The ones that keep taking the low fico loans end up with an even higher % of the High risk low fico loans...and the cycle continues until no one offers low fico FHA loans.
  • July 15 2009
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FHA does not have any minimum credit score requirements.  It is the individual lenders who set the minimum credit score requirements.  Most lenders today are around 620.  However, there are still a few who will go as low as 580 and some who require higher scores around 640.
  • July 15 2009
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We're actually still going down to 580, but there has been talk for some time now of that stopping soon.  I understand that the larger restrictions are coming from the "warehouse line" overlays.  None of these lenders including us are actually lending their own money.  They take out short term loans (warehouse loans) until they can re-sell the loans to an end investor/servicer.  There is tremendous risk at the moment on these large banks that give mortgage companies these warehouse loans.  If for some reason the mortgage companies folds, the warehouse lenders risk being stuck with these difficult to package or sell loans...or if the guidelines change, the value of the loan can rapidly change while the loan is on the warehouse line and make them unsalable.  Warehouse is where the problems are...
  • July 14 2009
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FHA hasn't raised their credit score requirement because they don't have a credit score requirement.

Each lender is free to set one or not set one of their own.
  • July 14 2009
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Hi FHA has not raised any score limits at the moment though I feel they will in the very near future. You can do min. of 620 but you will get hit with a .25% fee for score of 620-659 going FHA just be advised of that
thank you
  • July 14 2009
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Traci,
good day, we have seen some lenders gravitate to the higher 640 fico requirements. to my knowledge, these are secoundary investor or lender overlays. however, many lenders are allowing 620 and one/two allow even lower scores. 
  • July 14 2009
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