A borrower with a 562 credit score is buying a $280,000 home and asks what FHA will require down. Under FHA's minimum-credit-score and investment rules, and assuming all other eligibility requirements are met, what minimum downpayment applies?
Correct Answer
C) 10% down, because a score below 580 raises the minimum
FHA sets the minimum investment by score: 3.5% at 580 and above, 10% from 500 to 579, and no eligibility below 500. At 562 this borrower puts down 10%, or $28,000. Other choices: 3.5% is the figure for 580 and above, not for any qualifying score; 5% is a conventional low-down figure and is not an FHA tier; and FHA insures the lender against loss, which is not the same as financing 100% of the price. Source: HUD Handbook 4000.1, minimum required investment
Why This Is the Correct Answer
FHA sets the minimum investment by score: 3.5% at 580 and above, 10% from 500 to 579, and no eligibility below 500. At 562 this borrower puts down 10%, or $28,000. Other choices: 3.5% is the figure for 580 and above, not for any qualifying score; 5% is a conventional low-down figure and is not an FHA tier; and FHA insures the lender against loss, which is not the same as financing 100% of the price. Source: HUD Handbook 4000.1, minimum required investment
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