Finance of America Mortgage Now Accepts FICO Scores as Low as 580 on FHA, VA Loans

Published on: January 25, 2022

Borrowers with FICO scores as low as 580 now qualify for loans insured by the Federal Housing Administration (FHA) and loans guaranteed by the U.S. Department of Veterans Affairs (VA) through Finance of America Mortgage.

The change, which went into effect Jan. 7, provides borrowers who may have credit challenges access to more loan options and borrowing power. While other lenders may have higher FICO minimums for these government-backed loans, FAM offers more flexibility to help more people reach their homeownership goals.

Here are additional qualification requirements for this FICO score expansion: 

  • Applies to purchase loans only. 
  • FHA loan amounts cannot exceed standard and high-balance FHA limits, which vary by county 
  • VA loan amounts cannot exceed FAM’s VA loan limit of $1 million for borrowers with FICO scores below 680. VA borrowers with scores of 680 or higher can borrow up to $1.5 million. 
  • Maximum debt-to-income ratio of 43%. (Note: DTI ratio is a calculation that divides your pre-tax monthly income by all of your monthly debt payments, including your new mortgage, and is expressed as a percentage.) 
  • Does not apply to manufactured homes.

Key benefits of FHA and VA loans 

Government-backed loans offer expanded credit and qualifying requirements not typically available with conventional financing. A conventional loan is any mortgage that’s not guaranteed by the federal government. Here’s a quick overview of FHA and VA loans. 

FHA loans
Homebuyers often turn to FHA loans if they don’t qualify for conventional financing. This is typically because these borrowers have lower credit scores or they have little cash saved up for a down payment. 

With fixed-rate loan terms and less-stringent borrowing requirements than most conventional loans, FHA loans are an attractive option to many homebuyers. In addition to lower FICO requirements, FHA borrowers can make a down payment as low as 3.5% of the home’s purchase price. 

It’s important to note that FHA loans do require two types of mortgage insurance premiums (MIP): upfront and annual. Upfront MIP is a one-time payment at closing, which may be financed into an FHA loan. Annual or periodic MIP is paid monthly, typically for the life of an FHA loan. 

VA loans
VA loans are available through approved lenders to military borrowers, including active-duty service members, veterans, reservists, and eligible surviving spouses. 

VA loans require no down payment and no monthly mortgage insurance. Some VA borrowers may have to pay a VA funding fee, which is a one-time fee paid at closing to help offset the cost of the VA loan program to U.S. taxpayers. 

Ready to learn more about these and other mortgage options? Contact a local Finance of America Mortgage Advisor today.