[ChildOfThe60s]

Something amiss here.

My nephew has a good job, but 640 FICO and a wife with bad credit; debt/spending is par with his income, IOW he has no savings. He had to have his mother give him $10K for down and closing. He has been pre-approved on his 640 alone for a $135K house with 3% down and 3.85% on 30 yr fixed

3 years ago I refinanced to get 4.85% 30 yr fixed and had to have 20% equity and the wife and I both are over 800 FICO.

What the hell is going on?

[Cronos]

Depends on age as well -- future earning potential. If you are in your 50s banks will gauge that you have 15 odd years of earning, while your nephew is probably younger.

Credit worthiness is a complicated calculation and different banks have different calculations

[EVO X]

What the hell is going on?

The FED and the Federal government are trying to prop up housing values by any means possible.

The FHA loan is the new sub-prime. The FHA backs about 25% of all new home loans. It was under 5% before the housing bust. According to Dr. Housing Bubble, about 1 in 6 of these loans are in some form of delinquency.

From the information you have given, it appears your nephew and NIL are likely going to be another statistic. It really comes down to whether they are buying too much house. If they are still living pay check to pay check after buying, they probably shouldn't.