As default rates on FHA Loans continue to soar, most lenders have once again raised credit score requirements. Last year we saw FHA minimum scores set at 580, and now they have been raised to 620. I think its important to note that FHA is not setting these minimum scores, but the lenders who make the FHA Insured Mortgage Loans.
According to the March 2009 HUD Neighborhood Watch Data, 8.16% of FHA Loans Originated in Florida over the last 2 years are 90 days past due as of December 2008. This is up from only 1.81% in June of 2006, a 4 and 1/2 times increase.
An additional 11.63% of all FHA Loans in Florida are currently 30 or 60 days past due, but have not yet hit 90 days to be considered “in default”.
The major FHA Servicers are taking serious steps to try and get defaults under control. In addition to the new 620 credit score requirements, many have cut off loans originated by mortgage brokers. We have also seen restrictions on borrowers with no credit scores, reduction in cash out loan to values and restrictions on higher debt to income ratios.
I am sure there are a few lenders left out there taking FHA Loans under 620 score, but expect to pay a higher rate and jump through a lot of extra hoops to obtain an approval. If you have a 580 credit score and are trying to buy a home or refinance with an FHA Loan, your best bet is take steps to try and improve your credit score.