Q: If I am looking to buy a property for $500,000 in New York state though an FHA mortgage. What would the difference in the mortgage rate and fees be if I was putting down 3.5 percent and I had a 620 credit score as opposed to a 720 credit score?
A: There is some good news for you; the FHA will not penalize your interest rate based on a lower credit score.
Since the FHA program does not use risk-based pricing as Fannie Mae and Freddie Mac do, there is no premium added to the interest rate and no added fees if your credit score is only 620. You should see the same offer at FICO 720 as FICO 620, and HUD does not mandate any increase in fees, either.
That said, and even though the FHA program will accept borrowers with FICO scores as low as 580, lenders are afraid of introducing too many low credit borrowers into the FHA insurance pool since outsized losses could cost them their FHA eligibility. As such, lenders may use "add ons" or have a credit floor of 620 or even higher before they will consider your application.
Note: Unless you are buying a home in Bronx, Queens, Kings, Manhattan, Richmond, Nassau, Dutchess, Putnam or Rockland counties, FHA maximum loan limits don't reach as high as $500,000 or even the $482,500 which would remain after a 3.5 percent down payment. If it's one of the above, $625,000 is the maximum. Otherwise, with a few exceptions in counties around the capital district, most areas of New York State don't climb above $271,050 for a single-family residence.
A 25-year expert observer of the mortgage and consumer debt markets, Keith Gumbinger has been cited in thousands of articles covering a wide range of consumer finance and economic topics in outlets ranging from the Wall Street Journal to the Bottom Line newsletters. He has been a featured guest on national broadcasts for CNN, CNBC, ABC, CBS and NBC television networks and has been heard on NPR and other national and local radio programs. Keith is the primary researcher and writer for HSH.com's MarketTrends newsletter and has authored or co-authored a number of consumer guides on mortgages, home equity, refinancing and more.