FHA Loan Credit Score Requirements For Borrowers

If you have been dreaming of owning your own home but you’re worried that your credit score is too low, an FHA loan might be the key to making home ownership a reality. While many types of conventional loans have stricter financial requirements, FHA loans are more lenient and provide more flexibility for first-time home buyers.

But even FHA loans require a minimum credit score and other financial guidelines, meaning you’ll have to pay close attention to some very indicative measurements of your financial health before applying. For your convenience, we’ve broken down the FHA loan credit score requirements.

What Is The Minimum Credit Score For FHA Loans?

The Federal Housing Administration’s (FHA's) minimum credit score requirement is a FICO® Score of 580 with a down payment of as little as 3.5%. However, borrowers with enough cash saved for a down payment of 10% can qualify for an FHA loan with a credit score as low as 500. You should know that most lenders will have their own minimum credit scores needed for an FHA loan – Rocket Mortgage® requires a minimum score of 580.

It’s also important to note that, although you may be eligible for an FHA loan with a credit score of 500, loan terms will not be as favorable as they would be with a higher score. For example, your annual percentage rate (APR) could be relatively high, costing you more money down the road.

While these are the standard credit scores needed for an FHA loan, lenders do have the wiggle room to accept a lower credit score. Should you have a credit score below 500, your lender may still qualify you for the loan once they look at other indicators of your financial eligibility.

In other words, if your lender sees that your debt-to-income ratio is less than 43%, they may be a little more flexible with your credit score. In order to fully understand situations like these, let’s take a look at debt-to-income (DTI) and other ratios to see how they relate to your FHA loan credit score eligibility.

DTI And Minimum Credit Score For FHA Loans

As a standard, the Federal Housing Administration requires borrowers to have a debt-to-income ratio below 43%. A DTI is the ratio of your monthly debt payments compared to the money you bring in each month. If your obligations are below 43% of your monthly income, you can qualify for an FHA loan.

Again, your lender has some leeway here. If you have a credit score above 580 or perhaps a bigger down payment, your lender might make an exception by accepting a DTI as high as 50% or more. Similar to credit score minimums, not every FHA-approved lender will be open to stretching beyond these guidelines – Rocket Mortgage may require as low as a 38% DTI.

Your housing expense ratio is another important guideline to keep in mind when exploring an FHA loan. Simply put, a housing expense ratio is the amount of money you spend on housing compared to your total monthly income. The FHA requires a ratio below 31% to get a mortgage.

Both your debt-to-income ratio and your housing expense ratio can lower the FHA minimum credit score required by your lender. However, it remains true that the higher your credit score, the more favorable your interest rate and other loan terms will be. Knowing this, you might consider getting your credit mortgage-ready before applying for an FHA loan.

Advantages Of Exceeding The FHA Loan Minimum Credit Score

Though it’s comforting to know that you can still qualify for an FHA loan with a lower credit score, the advantages of a higher credit score might be worth waiting for. A strong credit score has many benefits for FHA loan applicants:

• You may receive a lower interest rate.
• You may be allowed to make a lower down-payment.
• Lower down payments offer the flexibility to cover other costs of buying a home.
• A lower down payment means you can buy a house sooner if you’re in a time crunch, if it’s a buyer’s market or if you’re trying to lock in a low interest rate.

Additional FHA Loan Requirements

In addition to knowing the credit score needed for an FHA loan, it’s important to understand the other guidelines, both financial and otherwise, for this type of mortgage.

FHA Loan Income Requirements

There is no minimum income requirement for borrowers. However, prospective borrowers will need to have at least two open credit accounts. As a borrower, you must also be free of any outstanding federal debts or debts associated with the FHA. Finally, you’ll need written documentation of any cash gifts toward your down payment.

Mortgage Insurance Requirements

Mortgage insurance is required for FHA borrowers. If you make a down payment of 10% or more, you’ll pay a mortgage insurance premium for 11 years. For down payments that are less than 10%, you’ll pay FHA mortgage insurance premiums over the entire duration of the loan – unless you refinance to a conventional loan.

You’ll have to pay an upfront premium and an annual premium. Your upfront premium will equal 1.75% of the total value of your loan. This amount will be due at closing, or it can be rolled into the loan amount and paid over time. The annual premium will be calculated based on the loan amount, length of mortgage terms and your down payment. This monthly payment is typically added to your monthly mortgage payment determined by the FHA loan terms.

FHA Loan Limits

FHA loan limits will vary depending on your home’s location, and will differ from conventional loan limits. The FHA loan limit for single-family homes in 2022 designates a “floor” of $420,680 and a maximum of $970,800 in more expensive areas.

FHA Property Requirements

The FHA requires that the property is not a house flip or an investment property, and that at least one borrower must occupy the home within 60 days. The house must also pass an appraisal to ensure that the property meets the minimum property standards determined by the Federal Housing Administration.

FHA Loans And Credit Scores: FAQs

Now that you’re familiar with the minimum credit scores needed for FHA loans, let’s consider some of the most popular questions asked about FHA loans and credit scores.

How do I qualify for an FHA loan?

If you don’t meet the FHA loan credit score requirements, it’s important to boost your credit score. You can also increase your down payment, lower your home buying budget or apply with a co-borrower to become eligible for an FHA loan.

How do I get an FHA loan with bad credit?

If you have a poor or nonexistent credit history, you can still qualify with a number of nontraditional credit references for a loan that’s manually underwritten. Some of these references include rent, utility payments, insurance premiums not deducted by payroll, auto leases and retail store credit cards.

How do I apply for an FHA loan?

To apply for an FHA loan, you should research and select an FHA-approved lender, applying either in person or online. You should then receive a loan estimate that will state your loan type, interest rate, closing costs and monthly payments. Make sure to compare loan estimates before selecting your lender to ensure you’re getting the best possible loan terms.

The Bottom Line: FHA Loan Credit Score Minimums Vary

The FHA’s minimum credit score requirements will vary based on the lender you choose, the down payment you contribute and numerous other factors. If you have poor credit history, an FHA loan is worth exploring. Check out our guide to the minimum credit scores to buy a house for each type of home loan to determine which is the best fit for you before applying.