FHA's published minimum is 580 FICO for 3.5% down and 500 FICO for 10% down. In practice, most retail lenders will not touch a file below 620 due to lender-imposed credit overlays. For an MLO working with borrowers in the 580-620 range, the challenge is not FHA eligibility; it is finding a lender that will actually underwrite the file.
FHA Agency Minimums vs. Lender Overlays
HUD Handbook 4000.1 is clear: 580 or above qualifies for 3.5% down. 500 to 579 requires 10% down. The problem is that lenders layer their own credit score requirements on top of FHA's minimums. A lender with a 620 overlay is fully within their rights; they just take on more of the default risk at sub-620 scores. Most retail bank lenders and larger depositories use 620 as the floor. Wholesale lenders and specialized FHA lenders often maintain 580 as their actual operating floor.
What Changes Below 620
- ✦Automated approval through DU or LP is less likely; manual underwriting becomes the path
- ✦Manual FHA underwriting DTI cap: 31/43 without compensating factors
- ✦With one compensating factor: up to 37/47 is permitted
- ✦With two compensating factors: up to 40/50 is permitted
- ✦Compensating factors include 3 or more months of PITI reserves, low DTI, minimal payment shock, and verified residual income
Finding Lenders That Will Go to 580
Ask your account executives directly about the credit floor, not the stated guideline. Stated overlay floors sometimes differ from actual case-by-case willingness. Broker channels generally have more 580 options than retail bank channels. Build relationships with two or three wholesale lenders that have demonstrated willingness to manually underwrite FHA files at 580. Document the history so you know where to go when this borrower profile comes across your desk.
Aria maintains current lender overlay information including FHA FICO floors. Ask which lenders are currently closing FHA at 580 at vicariointel.com.
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