FHA Mortgagee Letter 2026-11 — Updated Minimum Decision Credit Score Methodology for the Implementation of Alternative Credit Scores

This ML: • updates Minimum Decision Credit Score (II.A.1.b.ii(A)(3)) to revise the methodology for determining the MDCS when multiple credit score models are present; • updates LTV Limitations Based on Minimum Decision Credit Score (II.A.2.b.i) to align headings and terminology; • updates Approvable Ratio Requirements (Manual) (II.A.5.d.viii) to align terminology; • updates Loan-to-Value Ratios for Refinance (II.A.8.a.x(A)) to align headings and terminology; • updates Borrower Eligibility – Credit Score (II.A.8.b.ii(A)(3)) to align terminology; • updates Streamline Refinance Exemptions (II.A.8.d.vi(C)(1)) to align terminology; • updates Section 203(b) (II.A.8.o.vi(A)) to align terminology; and • removes Borrower Minimum Decision Credit Score (II.B.2.b.ii(A)(8)), as HECMs do not rely on credit scores, and renumbers subsequent sections. The Handbook 4000.1 sections impacted by this ML are provided in Attachment 1, with changes tracked in redline to help users clearly identify the policy requirements being revised or removed from the Handbook. FHA Single Family Housing Policy Handbook 4000.1 The policy changes will be incorporated into Handbook 4000.1 as follows: Minimum Decision Credit Score (II.A.1.b.ii(A)(3))

(a) Definitions Origination Through Post- Closing/ Endorsement A Credit Score Model Type refers to a credit scoring model (e.g. Classic FICO, VantageScore 4.0, or FICO 10T) on a credit report that contains scores from the credit repositories for a Borrower. A Borrower-Level Score refers to the credit score selected for each Borrower after evaluating the scores from each Credit Score Model Type submitted. Minimum Decision Credit Score (MDCS) refers to the lowest Borrower- Level Score among all Borrowers on the transaction.

(b) Standard (i) Determining the Minimum Decision Credit Score (MDCS) To determine the MDCS, the Mortgagee must first determine the Borrower-Level Score for each Borrower by evaluating the scores from each Credit Score Model Type submitted. Select the score from each Credit Score Model Type as follows: • if three differing scores are reported, use the middle score; • if two differing scores are reported, use the lowest score; • if only one score is reported, use that score The Borrower-Level Score is the lowest score of the selected scores from each Credit Score Model Type submitted. If only one Credit Score Model Type is submitted, the score selected from the process above is the Borrower-Level Score. The MDCS is the lowest Borrower-Level Score among all Borrowers for the transaction. Where the transaction involves multiple Borrowers and one or more of the Borrowers do not have any credit scores (non-traditional or insufficient credit), the MDCS is the lowest Borrower-Level Score among the Borrowers with credit score(s). (ii) Eligibility The Mortgagee may submit one or more Credit Score Model Type(s), provided the same model type(s) are used for all Borrowers. For example, the Mortgagee may not submit FICO 10T for the primary Borrower and VantageScore 4.0 for the co-Borrower. The credit report retained in the case binder must include all Credit Score Model Type(s) submitted in the final TOTAL submission. The credit report may include additional Credit Score Model Types that were not submitted to TOTAL. For example, if VantageScore 4.0 and FICO 10T are submitted in the final TOTAL submission, the credit report retained in the case binder must include both VantageScore 4.0 and FICO 10T, but may also include Classic FICO. The transaction is not eligible for FHA-insured financing if the MDCS is less than 500. Loan-to-Value Limits (II.A.2.b) i. LTV Limitations Based on Minimum Decision Credit Score (Applies to All Transactions) The Mortgagee must review the credit report(s) for all Borrowers on a transaction to determine the Minimum Decision Credit Score (MDCS), except for Mortgages to be insured under Section 247 (II.A.8.h), Section 248 (II.A.8.g), Streamline Refinances (II.A.8.d), and Assumptions (II.A.8.n). The MDCS will be used to determine the maximum insured financing available to a Borrower with traditional credit. The table below describes the relationship between the MDCS and the LTV ratio for which the transaction is eligible. Borrowers with non-traditional or insufficient credit histories are eligible for maximum financing but must be underwritten using the procedures in Manual Underwriting of the Borrower (II.A.5). If the MDCS is: Then the transaction is: at or above 580 eligible for maximum financing between 500 and 579 limited to a maximum LTV of 90% Final Underwriting Decision (Manual) (II.A.5.d) viii. Approvable Ratio Requirements (Manual) The maximum Total Mortgage Payment to Effective Income Ratio (PTI) and Total Fixed Payments to Effective Income Ratio, or DTI, applicable to manually underwritten Mortgages are summarized in the matrix below. The qualifying ratios for Borrowers with no Borrower-Level Credit Scores are computed using income only from Borrowers occupying the Property and obligated on the Mortgage. Non-occupant co-Borrower income may not be included. Minimum Decision Credit Score Maximum Qualifying Ratios (%) Acceptable Compensating Factors 500-579 or No Credit Score 31/43 Not applicable. Transactions with Minimum Decision Credit Scores (MDCS) below 580, or with no credit score may not exceed 31/43 ratios. Energy Efficient Homes may have stretch ratios of 33/45. 580 and above 31/43 No compensating factors required. Energy Efficient Homes may have stretch ratios of 33/45. 580 and above 37/47 One of the following: • verified and documented cash Reserves; • minimal increase in housing payment; or • residual income. 580 and above 40/40 No discretionary debt. 580 and above 40/50 Two of the following: • verified and documented cash Reserves; • minimal increase in housing payment; • significant additional income not reflected in Effective Income; and/or • residual income. Maximum Mortgage Amount for Refinance (II.A.8.a.x) (A) Loan-to-Value Ratios for Refinance The table below describes the relationship between the Minimum Decision Credit Score and the LTV ratio for transaction eligibility. If the MDCS is: Then the transaction is: at or above 580 eligible for maximum financing of 97.75% between 500 and 579 limited to a maximum LTV of 90% Borrower Eligibility II.A.8.b.ii(A) (1) Application Deadline The FHA case number must be assigned within one year of the date the PDMDA is declared, unless an additional period of eligibility is provided. (2) Principal Residence The mortgaged Property must be the Borrower’s Principal Residence. (3) Credit Score The transaction must have an MDCS of 500. Streamline Refinance Exemptions (II.A.8.d.vi(C)(1) (a) Non-credit Qualifying Exemptions Unless otherwise stated in this section, the following sections of Origination through Post-closing/Endorsement (II.A) do not apply to non-credit qualifying Streamline Refinances: • Ordering Appraisal • Transferring Existing Appraisal • Ordering Second Appraisal • Ordering an Update to an Appraisal • Minimum Decision Credit Score • Borrower and Co-Borrower Ownership and Obligation Requirements • Co-signer Requirements • Principal Residence in the United States • Military Personnel Eligibility • Borrower Ineligibility Due to Delinquent Federal Non-Tax Debt • Delinquent Federal Tax Debt • Property Eligibility and Acceptability Criteria • National Housing Act’s Statutory Limits • Nationwide Mortgage Limits • LTV Limitations Based on MDCS • Underwriting the Property • Underwriting the Borrower Using the TOTAL Mortgage Scorecard • Credit Requirements (Manual) • Income Requirements (Manual) • Asset Requirements (Manual) • Underwriting of Credit and Debt (Manual) • Underwriting of Income (Manual) • Underwriting of Assets (Manual) • Calculating Qualifying Ratios (Manual) • Approvable Ratio Requirements (Manual) • Documenting Acceptable Compensating Factors (Manual) (b) Credit Qualifying Exemptions The following sections of Origination through Post-closing/Endorsement (II.A) do not apply to credit qualifying Streamline Refinances: • Ordering Appraisal • Transferring Existing Appraisal • Ordering Second Appraisal • Ordering an Update to an Appraisal • Borrower Ineligibility Due to Delinquent Federal Non-Tax Debt • Delinquent Federal Tax Debt • Property Eligibility and Acceptability Criteria • National Housing Act’s Statutory Limits • Nationwide Mortgage Limits • LTV Limitations Based on MDCS • Underwriting the Property • Underwriting the Borrower Using the TOTAL Mortgage Scorecard Maximum Mortgage Amounts (II.A.8.o.vi) (A) Section 203(b) Mortgagees must calculate the maximum mortgage amounts in accordance with the requirements of Calculating Maximum Mortgage Amounts for Purchases, using the applicable Loan-To-Value ratio (LTV) from this section, subject to LTV Limitations Based on Minimum Decision Credit Score.