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FHA Loan Credit Requirements

With FHA loans, the dream of home ownership is within reach for many first-time homebuyers, even those with less-than-perfect credit. Through qualification standards and low credit score requirements, these low-cost loans make buying a home not only possible but affordable.

Still wondering if your credit score will qualify for an FHA loan? Let’s take a closer look.

Minimum Credit Score Requirements for FHA Loan

Generally, the FHA minimum credit score is the lowest among all mortgage loan types, though lower credit scores come with greater down payment requirements.

  • Credit scores of 580 or higher can qualify for an FHA loan with a minimum 3.5% down payment
  • Credit scores between 500-579 can qualify for an FHA loan with a minimum 10% down payment

It’s important to understand that individual lenders set their own credit score minimums. While FHA (Federal Housing Administration) requirements allow sub-580 credit scores, borrowers with those scores might struggle to find a lender willing to work with them since many lenders still tend to prefer borrowers with a minimum credit score of 620. It’s best to get pre-approved with multiple lenders to accurately evaluate your possiblities.

Minimum Credit Requirements Comparison by Loan Type

Loan Type Minimum Credit Score
FHA (with 3.5% down) 580
FHA (with 10% down) 500
VA Loan 620
Conventional Loan 620
USDA Loan 640

*Exact minimum credit scores vary by lender.

FHA loan credit requirements are often significantly lower than other loan options. As you can see in the chart above, the minimum credit score for FHA loan borrowers can be as low as 500—more than 100 points lower than the typical minimums for other mortgage types.

Minimum Down Payment Percentage by Loan Type

Loan Type Down Payment Percentage
FHA 3.5% - 10%
VA Loan 0%
USDA Loan 0%
Conventional Loan 3% - 5%

Remember, in addition to higher down payments, FHA loans also require you to pay a Mortgage Insurance Premium (MIP) for either eleven years or the entire loan period, depending on your loan terms.

Can You Get an FHA Loan with No Credit?

Some consumers don’t have a credit score at all. They may have never opened a credit card, never taken out a loan, or be too young to have done either.

When dealing with buyers without a credit score, lenders can turn to alternate tradelines for help: such as past rent payments, utility bills, school tuition payments, or even gym memberships. The goal is for lenders to have a clear picture of the buyer’s payment history and their likelihood to repay their mortgage loan, should they be approved for one.

How to Get an FHA Loan with Bad Credit

HA loans are designed to be affordable for low-to-moderate-income borrowers, so they’re one of the most accessible loans for people with poor credit. Any credit score of 579 or below is considered “bad credit.” These low credit scores tell lenders that the borrower is more likely to default on their loan, which makes lenders unlikely to approve such borrowers for loans.

Thankfully, since the FHA loan is insured by the government, lenders hold less risk when providing borrowers with a home loan. By supplementing your loan purchase with a decent downpayment of 10% or more, some lenders will allow borrowers with credit scores between 500-579.

With the FHA credit minimum of 500, you won’t be able to qualify for an FHA loan with a credit score of 499 or lower.

Additional Eligibility Standards with Bad Credit

For an FHA loan in the 500-579 credit range, you should expect additional requirements.

For example, your debt-to-income (DTI) ratio, which is a measure of how your monthly debt compares to your gross income, typically cannot be above 43%. In other words, your debt payments cannot make up more than 43% of your monthly income. Various lenders will have their own specific requirements, so they may need you to have an even lower DTI ratio.

You will also only be eligible for a subprime loan. Subprime loans have notably higher interest rates than the going prime rate, or the standard interest rate that banks charge creditworthy borrowers.

Furthermore, if your credit score is below 600, you should also expect your loan application to be put through manual underwriting, which normally has a slower processing time than automated underwriting.

Manual Underwriting and FHA Loans

Most FHA loans go through “automated underwriting,” which is basically an advanced computer program that grants borrowers initial loan approval when they meet certain eligibility requirements. However, not all buyers can be approved (or even evaluated) by this method. If a borrower cannot be evaluated through automated underwriting, lenders move the loan file to manual underwriting, and an underwriter reviews the file by hand from the start.

The underwriter reviews an evaluation of the buyer’s credit history, payment history, income, employment, debts, student loans, and other financial liabilities, such as child support and alimony. Manual underwrites often have more restrictive lending guidelines than automatically approved loans.

However, even loan files with automatic approval must still undergo an underwriting process to verify key information.

Credit Requirements for FHA Refinancing

Later on, with your FHA loan in effect, you may realize you need to evaluate refinancing options. The credit requirements to refinance an FHA loan vary depending on the type of refinance you want. Here’s a breakdown of the different FHA refinances and their qualifying credit scores.

FHA Simple Refinance

As the name suggests, the FHA Simple Refinance is the basic option that allows borrowers to change their interest rate or loan terms, or to even change from an adjustable-rate mortgage to a fixed-rate mortgage.

Like a standard FHA loan, the FHA Simple Refinance usually requires a credit score of 580 or higher. Some borrowers may be able to refinance with a lower credit score of 500 if they have at least 90% or lower loan-to-value ratio—this is equivalent to having 10% of your home paid off, and it’s the same reason why you need to put down a down payment of 10% with a credit score in the 500-579 range for a standard FHA loan.

FHA Cash-Out Refinance

The FHA Cash-Out Refinance allows homeowners to refinance their existing mortgage by taking out a larger loan and receiving the difference in cash. This option may suit those needing extra funds for home improvements, debt consolidation, or other significant expenses.

Though the minimum set by the Department of Housing and Urban Development for any FHA product is technically 500, you realistically won’t be able to find a lender willing to do a cash-out refinance with that low of a credit score. In fact, most lenders will typically require a minimum of a 620 credit score to qualify for a cash-out refinance.

The minimum credit required is higher because cash-out loans represent a higher risk to the lender. When a homeowner takes out a larger loan and receives cash back, it increases the lender's exposure if the borrower defaults.

FHA Streamline Refinance

There are two types of FHA Streamline Refinances: credit qualifying and non-credit qualifying.

A credit qualifying streamline refinancing requires a credit check; this simply increases your chances of getting a better rate, should you qualify.

However, the FHA Streamline Refinance, uniquely, doesn’t always require a credit check. If you go with the non-credit qualifying refinance, you won’t need to meet a minimum credit score at all. As long as there’s a net tangible benefit, you have a qualifying history of on-time payments, and meet the lender’s acceptable DTI ratio, you can refinance your FHA loan without the hassle of credit checks.

As always, the exact requirements may vary by lender—these are just the minimum requirements set forth by the Department of Housing and Urban Development and the common lender requirements.