Signficance

• FHA insures one-third of the nations mortgages. That's more than six million homes. FHA is known for having relatively flexible credit standards compared to the conventional (non-FHA-insured) lender standards. To manage risk, FHA updates its credit criteria periodically to ensure that otherwise credit worthy low- to moderate-income borrowers have access to their programs.
  
  

Features

• Borrowers with minimal credit history and scores can qualify for FHA's low down payment program. Borrowers with less than a 580 FICO score require 10 percent of the purchase price, while all others require only 3.5 percent down.
  
  

Prevention/Solution

• To prevent fraudulent activity involving credit criteria, FHA underwriters obtain income, asset and credit documentation carefully. They must take care that the credit report and verification forms never pass through the hands of the borrower, a real estate agent, or another interested third party, according to the FHA Handbook.
  
  

Identification

• FHA's credit criteria is outlined in detail in HUD's handbook titled 4155.1, Mortgage Credit Analysis for Mortgage Insurance. Also known as the FHA Handbook, its rules and policies regarding borrower eligibility can be accessed online through the HUDCLIPS portal and printed out for reference and is available to everyone.
  
  

General Guidelines

• Credit criteria that FHA is concerned with includes: past credit performance as demonstrated by credit score and 30-day late payments; depth of credit (how much and how long); explanation for delinquent accounts; and documentation of non-traditional credit (e.g., bills, non-reported consumer debt).