FHA Minimum Credit Score


Recently, the FHA imposed a “minimum credit score” for FHA loans after sustaining serious losses during the latest housing crisis.

In short, those with credit scores below 500 will no longer be able to qualify for an FHA loan. Period. End of story.

And only borrowers with credit scores of 580 and above will be able to qualify for the FHA’s flagship 3.5% down payment loan program, which is really the only reason most borrowers choose FHA loans to begin with.

Borrowers with Fico Scores Below 580 Need 10% Down

Borrowers with Fico scores below 580 will need to come in with at least a 10 percent down payment if they want to take out an FHA loan, which kind of kills the popular loan type’s advantage.

Additionally, individual banks and mortgage lenders that originate FHA loans may have higher minimum credit score requirements, such as 620 or 640, depending on their risk appetite.

After all, they aren’t required to lend at the FHA’s minimum standards, so you may be out luck, even if you’ve got a 600 credit score.

[What credit score do I need for a mortgage?]

There Used to Not Be a Minimum Credit Score at the FHA

Prior to this rule change, there was no minimum credit score on an FHA loan, making them a very popular choice for those with bad credit scores.

But this risky underwriting guideline (or lack thereof) put the agency under a great deal of stress, leading to this change, along with higher mortgage insurance premiums to boot. So now future borrowers are paying for the risk taken in the past. Go figure.

If you plan on applying for a mortgage anytime in the near future, it is greatly recommended that you check your credit score to ensure it is in good shape.

Sure, you may be able to qualify for a mortgage with a bad or average credit score, but your mortgage rate will probably be much lower with a good or excellent credit score. We’re talking a few percentage points, depending on how low your credit score may be.

And a lower mortgage rate will equal big savings, not only in a lower monthly payment, but also via less interest paid throughout the life of the loan.

So it would be foolish to apply for a mortgage if you don’t know where you stand credit score wise, and don’t take measures to ensure your scores are in tip-top shape.

Put simply, know all 3 of your credit scores prior to applying, because mortgage lenders, including FHA loan lenders, use the median score! So all of them matter!

Tip: How to improve your credit score.