What’s the Lowest and the Average Credit Score for an FHA Loan?

This is part of our ongoing blog series that answers frequently asked FAQ questions. Today’s question is: What is the absolute lowest credit score allowed for an FHA loan in 2017? And what’s the average score for borrowers who use the program?

The Lowest Credit Score for an FHA Loan Is 500

When it comes to the lowest FHA credit score, there are two things you need to know above all else:

1. Ultimately, it’s up to the lender.

Mortgage lenders have the final say as to what credit score they will accept for an FHA borrower. The Federal Housing Administration does not lend money directly to borrowers – they simply ensure lenders against losses that might result from borrower default. The money comes from a lender, just like any other type of mortgage loan.

So while HUD does have specific guidelines regarding the lowest credit score for FHA loans, the final decision regarding loan approval will come from the mortgage lender. They can impose their own guidelines on top of those issued by HUD.

2. There are two “minimum” scores for this program.

There is actually a two-tiered system regarding the lowest credit score for an FHA loan. The absolute minimum score for program eligibility is 500. This is clearly stated in the Single-Family Housing Policy Handbook, also known as HUD Handbook 4000.1.

However, there is a secondary requirement as well. Borrowers need a credit score of 580 or higher to qualify for the 3.5% down payment option.

This two-tiered system causes confusion among some borrowers. When you use the phrase “lowest credit score for an FHA loan”, it can actually mean two things. The lowest number to qualify for the program is 500. But the whole reason people use this program in the first place is to qualify for the 3.5% down payment option, and borrowers need a score of at least 580 to use that option.

The Average FICO Score Among Borrowers

The previous section explains the absolute lowest credit requirements for the Federal Housing Administration’s mortgage insurance program. As for the average FHA credit score among borrowers who use this program, those numbers are usually a bit higher.

Ellie Mae is a company that provides mortgage origination and processing software to the lending industry. They also publish a monthly Origination Insight Report that “mines its application data from a robust sampling of approximately 80 percent of all mortgage applications that were initiated” through their software solutions.

Among other things, this report shows the average FICO credit score for closed FHA loans. These are loans that successfully reached the finish line.

Here’s a look at the latest averages from their July 2017 report.

• Refinance: Borrowers who refinanced had an average FICO credit score of 646.
• Purchase: Borrowers who bought a home had an average FICO number of 683.

Here’s the FICO score distribution among all FHA loans (both purchase and refinance):

• 80% of borrowers had FICO scores of 600 or higher, according to Ellie Mae.
• 12.83% were between 550 and 599.
• 5.74% of borrowers were between 500 and 549 on the FICO scale.

As near as we can tell, no FHA home loans were issued to borrowers with scores below 500. And that would make sense, because 500 is the minimum requirement specified in the HUD handbook.

There Are Other Qualification Criteria Too

We feel it’s important to point out that credit scores are just one of the qualification criteria for the FHA loan program. There are other requirements as well. A high FICO number alone is not a guarantee of financing. Borrowers must also have:

• A manageable level of debt, as explained here.
• Sufficient income to repay the loan, with documents to prove it.
• A down payment of at least 3.5% of the purchase price or appraised home value.

Disclaimer: This article is meant to give you some basic insight into (A) the lowest credit score needed to qualify for an FHA loan, and (B) the average FICO score among borrowers who actually use the program. This article is not meant to be a definitive source for credit guidelines relating to FHA loans. If you would like to find out if you qualify for this program, we recommend that you speak to an FHA-approved mortgage lender. You can find a list of these lenders on the HUD.gov website.