What Credit Score Do I Need for an FHA Loan?

FHA loans are designed to make homeownership more accessible, so they’re often a great option for those with less-than-perfect credit. To qualify for an FHA loan, you typically need a credit score of at least 500. The minimum score required depends on your down payment amount.

If your score is between 500-579, you’ll need to put down at least 10%. For borrowers with a score of 580 or higher, you can qualify with a lower down payment of just 3.5%. Keep in mind, lenders may have their own additional credit requirements, which could be higher than FHA guidelines. It’s also important to work on improving your credit score, as a higher score might help you secure better loan terms.

What is the minimum credit score for an FHA loan?

The minimum credit score you need for an FHA loan is typically 500 with a 10% down payment. A higher credit score may allow you to qualify with a down payment as low as 3.5%. If your credit score is below 500, you may want to consider a mortgage co-signer.

It’s important to note that while the Federal Housing Administration (FHA) sets credit score minimums, lenders may have their own requirements. Some lenders, for example, may require a higher credit score to manage their own risk. Shopping around for a lender that works with your credit range is key.

How do I apply for an FHA loan with bad credit? 

A poor credit score does not mean you can’t apply for an FHA loan. You may have to provide a larger down payment or accept a higher interest rate to off-set the additional lending risk. To get started, find a lender who specializes in FHA loans. They can help you understand your options and verify your eligibility. If your credit score is lower than the recommended minimum of 500, here are some steps you can take before applying:

• Consider a co-signer: Lenders will consider both your and the co-signer’s credit score, income, assets and debts when you apply. Since both of you will be responsible for the loan, you increase your odds of being approved for an FHA loan if you apply with a co-signer with a strong financial profile. 
• Dispute credit errors: Your credit report can reveal a lot about why your score is low. Get a free copy and assess it to make sure your low credit score isn’t due to an error on the credit agency side.
• Make on-time payments: A history of on-time payments may give you the leverage you need to show lenders you’re a reliable borrower who repays their debts. When renting, you can enroll in CreditClimb from Zillow to report your eligible on-time rent payments to the major credit bureaus.
• Avoid taking out any new lines of credit: A hard inquiry can be visible on your credit report for up to two years and lower your score. Consider waiting until after you’ve been approved for an FHA loan and closed on a home, before taking on a new car loan, student loan, credit card, or similar debt.
• Borrow less money: A unique quality to FHA loans is that they can be used to finance an FHA-approve condo. Condos generally cost less than a traditional, single-family home, so you may be able to take out a smaller FHA loan and put more money towards a down payment.   
• Contact a HUD housing counselor: The U.S. Department of Housing and Urban Development (HUD) provides housing counselors who can provide guidance on credit issues when buying a home.

What are the minimum credit scores for other loan types? 

FHA loans aren’t the only mortgage option. If an FHA loan isn’t the right fit for your needs, you may consider other loan programs. Here are the minimum credit scores for other popular loan types:

• Conventional loans: Conventional loans have a minimum credit score of 620 to 660. Like FHA loans, individual lenders may set their own criteria. 
• VA loans: Available exclusively to veterans, active-duty military members, and eligible surviving spouses. VA loans require a minimum credit score of 620. Some lenders will accept scores as low as 580 when other conditions are met. 
• USDA Loans: Backed by the U.S. Department of Agriculture, USDA loans are designed for buyers in rural or suburban areas. A credit score of 640 is typically required, but some lenders may accept scores as low as 580.

Each loan type comes with its own benefits, so exploring your options can help you find the best financing solution for your situation. Comparing different loan types and criteria can be a helpful “big-picture” exercise for prospective homebuyers. 

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