FAQ – Minimum FICO for the Down Payment Assistance Programs

There is a dirty little secrete about credit scores and how good of credit you need to get a home loan, and Down Payment Assistance. Let’s us FHA to start this example. Here is FHA’s FICO requirements at the time this page was published.

• Under 500 not available
• 500-579 available with 10% down
• 580-850 available with 3.5% down.

But the issue is that it is nearly impossible for the buyers to find a lender who does the lower FICO score loans.  This is due to something called an Overlay.  An overlay is when the lender takes the minimum required FHA guidelines and overlays their own guidelines on top./  Thus the resulting program that is available to the buyers is much less than FHA allows.  There are reasons that this happens, but they are not within the scope of this page.  Let it suffice to say that all lenders and all loan companies are not created equal.  Just to be clears, there are tons of overlays on all kinds of things not just FICO score.  They have overlays on how long you have to wait to apply after a bankruptcy, a short-sale and tons of other things that again are not within the scope of this paper.  Having said that, if you got declined for a loan for example for having a FICO score of 622, you might have noticed that the lender did not tell you this.  He instead told you what to do to fix your scores and come back to him when done.  You can’t really blame him, his job is to do loans, not give loans to other people.  Still you have to ask yourself the questions of whose interests you are looking after.  Most of you realize that you are the client not the lender and now realize that it is worth looking at other lenders to see if their overlays will allow for you to be successful now.

This is also true for Conforming/conventional, VA, USDA loans, etc.

As far as the Down Payment Assistance programs go, about half of them say that they have no criteria at all (if you meet the criteria for the first mortgage, you qualify for their Down Payment Assistance).  The other half impose their own guidelines.  If they do impose their own guidelines, usually it is 640 or below.

So now you understand that if you have a FICO of 580 or better (at the time of this paper) you can get an FHA loan and probably a VA loan to.  However it will be hard to find a lender who will do any Down Payment Assistance Programs until you have a FICO of 600 to 620 (due to their overlays) and some DAPs will force the lender to raise the minimum to 640.

 
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Still Have Questions? Call 877-696-7373 x777 or email Don Gardnier at Don@sd4u.com