FHA Sets Lowest-Score Rule for Multiple Credit Models Ahead of January 1 Shift

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The Federal Housing Administration has rewritten how lenders determine the controlling credit score on an FHA loan when more than one scoring model is submitted, settling a consequential underwriting question ahead of the agency’s January 1 transition to VantageScore 4.0 and FICO 10T.

Under Mortgagee Letter 2026-11, issued October 8, lenders first calculate a representative score separately for each model and each borrower. The lowest of those model-specific scores becomes the borrower’s score. On a loan with multiple borrowers, the lowest borrower-level score controls the transaction. FHA’s existing credit-score thresholds remain in place.

The distinction is important for mortgage companies preparing to offer newer scoring models. A lender may submit one or more of the three accepted models, but submitting an additional model does not allow the lender to select whichever produces the highest number. Where several models are submitted, the lowest selected result governs FHA’s Minimum Decision Credit Score, or MDCS.

How FHA’s calculation works

The 20-page letter establishes a two-stage calculation. For each credit scoring model submitted, the lender uses the middle score when the three credit repositories report differing scores. When only two different scores are reported, it uses the lower score; when only one is available, it uses that score. The lender then compares the resulting scores across the models submitted for that borrower and selects the lowest.

For a two-borrower transaction, the lender repeats that process for each person. The lower of the two borrower-level scores becomes the transaction’s MDCS. If one borrower has no score because of insufficient or nontraditional credit, the transaction’s MDCS is the lowest score among borrowers who do have scores, subject to FHA’s separate underwriting requirements.

Consider a hypothetical borrower whose selected Classic FICO score is 615 and selected VantageScore 4.0 score is 590. If the lender submits both models, the borrower’s FHA score is 590. A second borrower with a score of 570 would bring the transaction’s MDCS to 570. The example illustrates the prescribed calculation, not an actual loan or a prediction of how the two models generally compare.

FHA also requires consistency across borrowers. A lender cannot submit FICO 10T for one borrower and VantageScore 4.0 for the co-borrower on the same transaction. The same model or combination of models must be submitted for everyone. The final credit report retained in the case binder must contain every model submitted to FHA’s TOTAL Mortgage Scorecard, although the report may also contain scores from models not submitted.

Credit thresholds do not change

The new models do not alter FHA’s fundamental eligibility bands. A transaction with an MDCS below 500 is ineligible for FHA-insured financing. A score from 500 through 579 generally limits the transaction to a maximum 90% loan-to-value ratio, while an MDCS of 580 or higher can qualify for maximum financing, subject to other FHA requirements.

FHA retained the tri-merge credit-report requirement. The letter also updates references to the MDCS across loan-to-value limits, refinance calculations, manually underwritten debt-to-income requirements and several specialized programs. It removes a general minimum-credit-score reference from Home Equity Conversion Mortgage eligibility because HECM underwriting does not use credit scores in that way.

These changes do not mean that every borrower with a score of 580 automatically qualifies, or that a score of 500 establishes an entitlement to an FHA loan. Income, debt, assets, credit history, property requirements and applicable underwriting findings remain relevant. Individual lenders may impose additional requirements.

January 1 is the operative date

The policy applies to FHA-insured Title II single-family mortgage programs for case numbers assigned on or after January 1, 2027. FHA announced that date in September, when it issued a preparedness guide and TOTAL Scorecard resources. The October letter goes further by formally amending the decision-score methodology in Handbook 4000.1.

For mortgage operations teams, the work extends beyond ordering a different score. Credit vendors, loan-origination systems and automated underwriting interfaces must identify model types, retain the appropriate repository scores, calculate the borrower-level result correctly and submit a consistent set of models across all borrowers. Quality-control procedures must also distinguish the scores on a retained report from those actually submitted in the final TOTAL transaction.

FHA’s October 8 industry notice encourages lenders to coordinate with credit and technology partners and points to technical resources and virtual office hours in November and January. The agency said its existing policies remain in force until amended.

One additional distinction deserves attention. FHA’s approach is not interchangeable with the credit-scoring transition at Fannie Mae and Freddie Mac. The Federal Housing Finance Agency’s enterprise program has its own delivery and pricing rules. Lenders originating both FHA and conventional loans will need product-specific procedures rather than a single assumption about which score controls.

WRE reported in September on FHA’s January implementation schedule. This latest directive answers a question the original timeline did not resolve in full: how a lender must determine the decision score when it sends multiple models. It is a material operational update, not a change to the previously announced start date.

Whether alternative models ultimately broaden access to FHA financing will depend on their performance, lender adoption, costs and how underwriting systems apply the resulting scores. FHA’s new letter supplies the calculation rules; it does not publish a forecast of how many additional borrowers will qualify.