A report published this summer by the Department of Housing and Urban Development revealed the average credit score for borrowers using an FHA loan. Home buyers who used the FHA loan program in Washington and Oregon (our primary service area) and elsewhere in the U.S. had an average credit score of 670, during the second quarter of fiscal year 2018.
These and other insight were found within “FHA Single-Family Mutual Mortgage Insurance Fund Programs,” a quarterly report that HUD sends to Congress.
Average Credit Score for FHA Loans
Borrowers in Washington and Oregon who used the FHA loan program during the second quarter of FY 2018 had an average credit score of 670. That’s based on the HUD report mentioned above.
We’ll get back to the averages and minimums in a moment. But first, a couple of definitions:
- Credit scores are three-digit numbers computed from information found within a person’s credit reports. Banks and lenders look at these scores when considering loan applicants. A higher number indicates that a person has paid most, or all, of their bills on time in the past. A lower number might be the result of missed payments, delinquencies, etc.
- FHA loans are similar to other types of mortgage loans, with one key exception. They are insured by the Federal Housing Administration, which is part of HUD. FHA loans allow for a down payment as low as 3.5% for eligible borrowers, along with flexible qualification criteria.
Here’s the primary connection between FHA loans and credit scores: A higher score can help a borrower qualify for all kinds of mortgage financing, including the FHA program. Additionally, borrowers with higher credit numbers tend to qualify for lower mortgage rates, which can be a money saver.
Minimum Requirements for the Program
The average credit score among FHA loan borrowers in Washington and Oregon was in the 670 range during the first part of 2018. But that’s not the minimum required score for this mortgage program. It’s just the statistical average based on all loans generated during that period.
The minimum is significantly lower, and there are two numbers to be aware of here:
- 500: According to current HUD guidelines, borrowers in Washington or Oregon who want to use an FHA loan must have a credit score of 500 or higher. That’s the minimum requirement for this particular mortgage program.
- 580 or higher: Borrowers who want to take advantage of the low 3.5% down payment option must have a score of 580 or higher. Otherwise, they could be required to make a larger down payment.
As a result of these requirements, most of the folks who use FHA loans in Washington and Oregon have credit scores of 580 or higher. This allows them to (A) qualify for the program and (B) enjoy maximum financing with a LTV ratio up to 96.5%. This makes the program popular with first-time buyers in particular.
The HUD report mentioned earlier also revealed that the share of FHA loans with credit scores less than 640 rose to 25.9% during the second quarter. So a good portion of their business goes to borrowers who fall within the “good” to “fair” scoring category. Which underscores a point made earlier. You don’t need perfect credit to qualify for an FHA loan in Washington or Oregon.