It’s one of the most common questions we get from our readers: “Can I qualify for an FHA loan with a credit score of 580, 600, 650, 680 or … [fill in the blank]?”
Unfortunately, this is not a yes-or-no question. The Department of Housing and Urban Development (HUD) has some specific guidelines for borrower credit scores, and they are explained below. But the lenders that actually originate the loans can use their own standards as well. So it’s basically a two-tiered system of eligibility.
With that being said, there are certain industry-wide trends we can use to at least partially answer this question. Let’s begin on a positive note…
It’s possible to qualify for an FHA loan with a credit score of 600, 620 or 650. Anything below 600 is pushing it. Much will depend on your other qualifications, such as your income stability and your total debt load. If you have no other issues with your finances, then a credit score between 600 and 650 probably won’t prevent you from getting an FHA-insured mortgage loan.
Getting an FHA Loan With a Credit Score of 600, 620, 650, etc…
Let’s get down to the nitty-gritty. Here’s what you need to know about qualifying for an FHA loan with a credit score in the 600 range:
- HUD has two official cutoff points for borrowers who use this program. According to the HUD.gov website, borrowers with a score of 580 or higher are eligible for maximum financing at 96.5% (for a down payment as low as 3.5%). Borrowers between 500 and 579 may qualify for the program, but will have to put down at least 10%. Those who fall below 500 are not eligible for an FHA loan.
- Mortgage lenders that participate in this program can set their own credit guidelines, and they are often higher / more strict than HUD’s minimums. This is known as an “overlay” in industry jargon.
- Mortgage lenders use your credit score (and other factors) to decide whether or not they will lend you money. They also use it to determine what kind of interest rate they will offer. Generally speaking, borrowers with bad credit get charged higher rates.
- You could potentially qualify for an FHA home loan with a credit score of 600, 620 or 650. But you probably won’t qualify for the lender’s best rates in that range.
- Most of the lenders we have spoken to within the last few months are setting the bar somewhere around 620 or 640, for FHA borrowers. (This is on the FICO scoring range, which goes from 300 – 850.) A few said they would go lower than that, if there are “compensating factors” such as a long history of timely mortgage payments. It varies.
- Depending on who you ask, the average credit score in the United States is somewhere between 670 and 700. If that’s true, it means that most people meet the official HUD minimum cutoff for FHA financing. But they still might be “on the line” in terms of lender overlays. Remember, there are two sets of qualification standards — HUD’s and the lender’s.
- Bottom line: You’ll have an easier time qualifying for an FHA loan if you can get your score above 620. The higher, the better. This will also help you qualify for a better interest rate and reduce your total borrowing costs.
Conclusion and Going Forward
Consumer credit scores are a type of risk indicator for lenders. If your number is low, it’s probably because you’ve had trouble keeping up with bill payments in the past. This is a red flag for lenders. It signals risk. On the other hand, a high score indicates a person who pays his or her bills on time, most or all of the time. A higher number increases your chances of getting approved for an FHA loan.
At the same time, lenders usually consider the “whole borrower.” They look at other factors as well, in order to make a big-picture assessment of a person’s risk profile. Credit scores are important — but they’re not everything.
Can you get an FHA loan with a score of 580? That might be difficult, given the current trends we are seeing. Can you qualify with a 620 or higher? It’s certainly possible, but it will also depend on your income and debt situation.
As you can see, there are many variables at work here. Every lending scenario is different, because every borrower is different. At the end of the day, the only way to find out if you’re qualified for a loan is to apply for one.
Disclaimer: This article addresses the question, Can I get an FHA loan with a credit score of 600, 620, 650, etc.? This article mentions industry trends and standards that are not set in stone. Every mortgage lenders has its own business practices, standards, and appetite for risk. As a result, qualification criteria vary from one company to the next. You should not assume you are unqualified for FHA financing based on anything written above. The only way to find out is to apply for the program.