What Credit Score Do I need for FHA?

In a blog post that I wrote in 2007, I stated very clearly that FHA has no credit score requirement. The problem is, the banks that must approve the loans want to curb their defaults. As it was explained to me by one mortgage company executive, "We comb the loans that we have approved over the past few years, assessing where the majority of our failures are coming from. In our case, less than 600 FICOs seem to lead the pack."

That was 2007. Today the bar has been raised. Most banks want to see a 620 score or they will not lock and approve the loans. Are there exceptions to this rule? Sure, but they are far and few between. Will it ever loosen up? Not as long as we continue to see record number of foreclosures.

For borrowers with less than a 620, I suggest you work with a lender who has a "Credit Rescoring" tool available to them. Start early by ordering your credit report so that you know what you need to do in order to improve your score. This is the first step.

For in 2009, credit is king!