FHA Credit Score Requirements
The average credit score in America reached 700 in 2017, the highest in history, and 5.51 million homes were sold. Not only are Americans taking better care of their credit, but they are also buying more.
The FHA credit score requirements for 2018 may help encourage Americans to continue borrowing confidently. The Federal Housing Authority (FHA) now requires people to have a credit score of at least 500 to be eligible for a loan. Borrowers who have a score between 500 and 580 will need to pay a 10 percent down payment.
However, lenders often require borrowers to have better credit than the FHA requirements. At least they did – a new policy change may make it easier to get a loan. Keep reading to find out how!
Lender Evaluations Are Now Relative
Although the FHA is a federal department, it does not lend out money itself. Instead, it backs money that typical banks lend out. So rather than borrowing straight from the government, borrowers still lend from a bank, but with the government as a kind of cosigner.
Under the old policy, lenders would be evaluated based on how many bad mortgages they handed out. If a lender gave 100 people loans and three didn’t pay it back, the lender might face serious consequences for its three percent rating.
However, the new policy evaluates lenders based on the credit scores of its borrowers. So if a bank gives loans to people with a credit score of fewer than 640, and three don’t pay them back, the bank may not face as harsh a punishment.
The ratings are also compared to national averages, rather than the bank’s region. So if many people across the country with credit scores under 640 fail to repay their loans, the bank will not need to adjust its policies towards lending.
Under the old policy, the bank would have to raise its FHA credit requirement. Now, if the rest of the country is seeing similar performances, banks will not react so drastically.
FHA Credit Score Requirements for 2018 Can Carry Less Weight
Since individual borrowers will be compared to the national average, it is more likely banks will be open to considering other statistics. Deciding on a loan may start to involve other aspects of a borrower’s finances.
There should also be more stability across the market. Banks used to raise their FHA credit score requirements after being penalized for handed out too many bad loans.
Now, since borrowers are evaluated differently, banks may not need to change their requirements as much.
Yet, the banking industry is notorious for being slow to adopt new changes. While these new credit guidelines are from the federal government – they are just that. Guidelines.
It will take time for your local lenders to adjust to them.
It is Time to Buy a Home
With these new FHA credit score requirements for 2018, now may be the perfect time to take the next step in your life and buy a home for you and your family.
Purchasing one can be intimidating and complex, but that’s normal. Everyone needs help with major purchases like this.
Contact us for your free quote, and we will help you get the keys to your perfect home.