FHA “real” credit score needed to get an FHA loan
There are two minimum score levels for FHA, depending on down payment level.
- 580 with 3.5 percent down
- 500 with 10 percent down
However, FHA is NOT a non-prime loan program. While it allows low credit scores, it does not allow approvals to applicants who have low scores because their credit history is just plain bad.
There are many reasons that you can have a low credit score without actually having bad credit:
- You use a lot of your available credit (this is called “high utilization”)
- You have too many accounts, or too many new accounts
- Your credit history is very short or has very few transactions or accounts (this is called a “thin file”)
- You had some derogatory events in the past
When evaluating an applicant’s credit history, FHA guidelines say:
Borrowers who have made payments on previous and current obligations in a timely manner represent a reduced risk. Conversely, if a borrower’s credit history, despite adequate income to support obligations, reflects continuous slow payments, judgments, and delinquent accounts, significant compensating factors will be necessary to approve the loan.
According to mortgage data analysts at Ellie Mae, just about 2 percent of FHA loans went to applicants with FICO scores in the 500 to 549 range. So not many borrowers actually thread this needle successfully.
FHA loans with no credit score
FHA loans are even available to those who have no traditional credit history – i.e. those who have paid cash for everything and have never opened a credit card, auto loan, or mortgage.
According to FHA, lenders must not automatically deny applicants with no credit. Rather, it should gather history for credit-like accounts: utilities, cell phone bills, insurance payments, and even childcare expenses.
How to get mortgage approval with non-traditional credit
Lenders can approve a loan built on non-traditional credit. A mortgage can be the applicant’s first-ever real credit account.
Getting an FHA mortgage after bankruptcy
Different rules apply depending on the type of bankruptcy. Here are standard waiting periods for bankruptcies:
- FHA loans: 2 years for Chapter 7, as little as 12 months for a Chapter 13 (with bankruptcy court approval)
- VA home loans: 2 years for Chapter 7, as little as 12 months for a Chapter 13 (with bankruptcy court approval)
- Conforming (Fannie Mae and Freddie Mac): 2 years
- USDA home loans: 3 years (12 months in exceptional circumstances) for Chapter 7, as little as 12 months for Chapter 13 (with bankruptcy court approval)
FHA loan after a foreclosure
A foreclosure can certainly drag down your credit score. Fortunately, agencies tell lenders it’s okay to lend to an applicant after a foreclosure, provided enough time has passed.
- FHA loans: 3 years
- Conventional mortgages: 7 years
- USDA home loans: 3 years
- VA home loans: 2 years
Waiting periods are reduced if the event was caused by circumstances beyond the borrower’s control.
How do I check my FHA eligibility to buy a home?
For today’s U.S. home buyers, the Federal Housing Administration mortgage is among the most lenient and forgiving mortgage programs available. Find out whether you’re FHA-eligible.
FHA “official” credit score requirements
It’s getting easier for borrowers to get an FHA-backed home loan.
Major lenders will now approve 96.5 percent FHA mortgage applications for borrowers with FICO scores of 580. The program’s 3.5 percent down payment minimum is among the most lenient for today’s home buyers. In addition, underwriting requirements on an are more flexible and forgiving.
Minimum credit score for a mortgage: FHA, VA, conforming, USDA
FHA might not be your only choice if you have a lower credit score.
It is often the best option, but not the only one, especially if you are buying in a non-urban area or have served in the military.
FHA: Requires a 58 minimum score with 3.5 percent down. If you have 10 percent down, you may get an approval with a score as low as 500. Understand that your credit history must be clean for at least six months to provide a real shot at approval, and many lenders set their minimum scores higher than the FHA requires.
VA: Many lenders require a 620 score, although VA itself does not publish a minimum score.
Conforming loans: These conventional (non-government) loans are backed by Fannie Mae and Freddie Mac. They are widely available from many lenders in the US. Minimum credit scores can be as low as 620, but may jump to 680 or even 700, depending on your down payment size, debt-to-income ratio, number of units, and the way you intend to use the property. The matrix below shows how Fannie Mae sets its minimums.
- 25%+ Down Payment: Max DTI 36%; minimum FICO 620
- <25% Down Payment: Max DTI 36%; minimum FICO 680
- 25%+ Down Payment: Max DTI 45%; minimum FICO 700
- <25% Down Payment: Max DTI 45%; minimum FICO 640
USDA: The USDA home loan FICO minimum is usually 640, unless extraordinary circumstances exist. Lenders may approve lower credit scores, but documentation requirements are heavier. The USDA mortgage is available in certain geographical areas around the U.S.
Can I buy a home with a lower credit score?
Lenders often look at the complete story, not just the credit score. This can work for or against you. Here are two situations that might play out in real life.
Scenario 1: An applicant had a bankruptcy 18 months ago, caused by overspending and skipping payments. He has a 660 credit score – high enough for an FHA loan. But, his waiting period is not up. He will not be approved.
Scenario 2: An applicant has a 580 credit score due to a one-time medical emergency. This caused unpaid bills and a job loss. She had perfect credit and steady employment before and after the event. She could be approved because the score does not reflect her true creditworthiness.
These situations play out every day across the country. Just because you have a low score does not mean you can’t be approved for an FHA loan or any other mortgage type.
FHA loans allow 3.5 percent down payments
FHA loans are an important component of the U.S. housing and mortgage market.
They are insured by the Federal Housing Administration and are available to US citizens and legal residents.
The agency was formed in 1934 and it exists to provide affordable housing to Americans. Today, it’s the largest insurer of mortgage loans worldwide.
The Federal Housing Administration doesn’t actually make loans. Rather, it insures loans made by the nation’s banks, providing protection against default and loss.
In order to gain the FHA’s protection, lenders must only make sure that the loan in question meets the lending standards as set forth by the FHA.
The FHA’s rule book is known as the “FHA guidelines” and it describes all allowable loan traits, as well as the going terms of a Federal Housing Administration-backed loan.
For example, FHA guidelines state that home buyers must make a minimum downpayment of 3.5 percent against a home’s purchase price; and that buyers can be cleared to buy a home 12 months after a bankruptcy, short sale, or foreclosure.
Guidelines also place limits on the size of an FHA-backed loan, which varies by county.
FHA loan limits: range from $294,515 for a single-family home to $679,650 for a 1-unit home. Limits increase for multi-unit properties, and those located in Alaska, Hawaii, Guam and the US Virgin Islands.
Minimum FHA credit score for a home loan
The minimum FHA credit score for a home loan dropped to 500 a couple of years ago. Here’s how that stacks up against other programs:
- USDA loans have a FICO floor of 640
- VA home loans require no minimum credit score
- Conforming loans (Fannie Mae and Freddie Mac) require a minimum credit score of 620
Some programs grant exceptions when there are mitigating circumstances, such as identity theft. Note that FHA won’t approve a mortgage with a 500 FICO unless you can put at least 10 percent down.
USDA programs have income-eligibility requirements, and you must buy in a designated rural area. And VA loans only go to VA-eligible buyers, those who are servicemembers or veterans.
Most Fannie Mae and Freddie Mac programs require larger down payments and / or lower debt-to-income ratios if your credit score is on the low end of the allowable range.
Minimum FHA Credit Score Requirement Falls 60 Points is available in the following areas/cities
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