Minimum Credit Score for FHA Loan To Raise to 620

Fannie Mae, the mortgage insurer, announced early this week that it is revising the eligibility, underwriting, and pricing policy to support housing market liquidity and sustainability. In a statement (PDF file) released on Tuesday, Fannie Mae said that starting December 12, 2009, the minimum credit score will be increased to 620 for all loans delivered to Fannie Mae, including loans insured or guaranteed by a federal government agency (Federal Housing Administration (FHA), Veterans Affairs (VA), Rural Development (RD), and the U.S. Department of Housing and Urban Development (HUD)).

As I mentioned early, though FHA has no minimum credit score requirement for FHA loans, many loan providers (remember FHA itself doesn’t issue loans. The loans come from private lenders) do impose a minimum score limit, usually starting at 580, on borrowers.

One of the reasons Fannie Mae decided to increase the minimum credit score is to “support prudent risk management and better ensure sustainable homeownership.” The revised requirement is clearly the response to the financial crisis that Fannie Mae, and Freddie Mac, had gone through last year (both Fannie and Freddie had to be bailed out by the government). While the increased minimum score is still much lower than what a private mortgage provider requires for a conventional loan, it’s a reminder for anybody, especially first-time homebuyers, that a good credit score is needed even if you want to buy a home with a FHA loan.

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