Credit Score Needed for an FHA Mortgage Loan in Washington State

FHA-insured home loans are a popular mortgage option for Washington State home buyers. They’re especially popular among first-time buyers with limited funds, since the program allows for a down payment of 3.5%. In this article, we’ll look at the basic credit score requirements for FHA loans in Washington State.

At a glance: According to the official handbook for this program, borrowers seeking an FHA home loan in Washington State should have a “minimum decision credit score” of 500 or higher.

Learn more below, or contact us with your mortgage-related questions.

Washington State FHA Credit Score Requirements

The Federal Housing Administration mortgage insurance program is overseen by the Department of Housing and Urban Development (HUD). This means HUD officials are responsible for establishing the minimum requirements for borrowers. This includes determining the minimum credit score for FHA eligibility.

Most of these requirements can be found in HUD Handbook 4000.1 (a.k.a., the Single Family Housing Policy Handbook). But don’t worry — you don’t have to dig through this 1,000-page handbook to find the credit score portions. We’ve extracted them for you.

Here’s what Washington State home buyers should know about FHA loan credit score requirements:

  • According to current HUD guidelines, borrowers need a Minimum Decision Credit Score (MDCS) of 500 or above to qualify for an FHA-insured home loan.
  • In order to use the 3.5% down payment option, which is one of the key benefits of this program, borrowers need a score of 580 or higher.
  • In the context of FHA loans, the MDCS is the “score reported on the borrower’s credit report when all reported scores are the same.” It’s the middle number when there are three of them available, or the lowest one when there are two.

As mentioned above, there are two important thresholds associated with FHA credit score requirements. They are 500 and 580. These are the minimum thresholds for (A) basic eligibility and (B) the 3.5% down payment, respectively.

Compensating Factors and Exceptions

There is quite a bit of flexibility built into the FHA loan program. In some areas, HUD officials allow for “compensating factors” to be used when qualifying borrowers for the program. Basically, this is when something positive offsets something negative.

For example, a person with a debt-to-income ratio slightly higher than the recommended FHA minimum might still qualify if the mortgage lender identifies a compensating factor (such as significant cash reserves).

But we’re getting into the underwriting weeds here. The point is, FHA loans have some degree of flexibility. So borrowers with lower credit scores or other issues shouldn’t assume they fall short of the minimum guidelines. In such situations, it’s best to talk to a loan officer who is familiar with the program, to see if there’s a path forward.

Let’s talk: Do you have questions about FHA credit score requirements for Washington State home buyers, or other aspects of the program? We can help. Sammamish Mortgage has been helping borrowers across the state for more than 20 years. We can help you choose the best financing option based on your particular needs. Please contact us with any questions you have.