Getting an FHA Loan With a Lower Credit Score

What credit score you need for an FHA loan

The Federal Housing Administration does not set a minimum credit score. Instead, individual lenders decide their own floor, and most will lend to borrowers with a score of 580 or higher. Some lenders go lower — down to 500 — but those loans carry higher interest rates and stricter terms. A score below 580 typically means you will need a larger down payment or will not find a lender willing to take the risk.

Your credit score is one piece of your application. A lender looks at your score, your debt-to-income ratio, your employment history, and your down payment size together. A lower score does not automatically disqualify you if the rest of your profile is solid.

Key Takeaways

• Most FHA lenders require a credit score of 580 or higher, though some will go as low as 500 with a larger down payment.
• A score between 500 and 579 usually means paying a higher interest rate and putting down at least 10 percent instead of the standard 3.5 percent.
• Lenders also look at your debt-to-income ratio, recent payment history, and employment stability alongside your credit score.
• Waiting three to six months to rebuild your score slightly can lower your interest rate by half a percentage point or more, saving thousands over the life of the loan.
• You can contact multiple lenders to compare their credit score requirements and rates, since they vary significantly.

How your credit score affects your down payment and interest rate

If your score is 580 or above, you can put down as little as 3.5 percent of the home price. Below 580, most lenders require 10 percent down. On a $250,000 home, that difference is $16,250 — a real barrier for many buyers.

Your score also determines your interest rate. A borrower with a 620 score might get a rate of 6.5 percent, while a borrower with a 740 score gets 6.0 percent. Over 30 years, that half-point difference costs roughly $40,000 more on a $250,000 loan. Even a 20-point improvement in your score can shift your rate by 0.25 percent.

Steps to improve your score before applying

If you are not yet ready to buy, spending three to six months rebuilding your score can pay off. Start by getting a copy of your credit report from all three bureaus — Equifax, Experian, and TransUnion — at annualcreditreport.com. This is free and does not affect your score.

Look for errors: accounts that are not yours, late payments that were actually on time, or duplicate entries. Dispute any mistakes directly with the bureau. Correcting a false late payment can raise your score by 30 to 50 points.

If your report is accurate, focus on paying down existing balances. Lenders look at your credit utilization — the percentage of your available credit you are using. Paying down credit card balances to below 30 percent of your limit can raise your score by 10 to 20 points per card. Do not close old accounts after paying them off; closing accounts lowers your available credit and can hurt your score.

Make every payment on time for the next few months. Payment history is 35 percent of your score. Even one late payment during your mortgage application process can disqualify you or lock you into a worse rate.

What lenders look at beyond your credit score

Your debt-to-income ratio — the percentage of your monthly income that goes to debt payments — matters as much as your score. FHA loans allow a ratio up to 50 percent, meaning if you earn $4,000 a month, your total debt payments (including the new mortgage) can be up to $2,000. If your ratio is already high, paying down existing debt before applying strengthens your case.

Lenders also examine your recent payment history. A late payment from two years ago hurts less than one from two months ago. If you have had recent late payments, waiting six months gives lenders confidence that your situation has stabilized.

Employment stability matters. Lenders want to see at least two years in your current field, though not necessarily at the same employer. A recent job change in the same industry is usually fine; a career change can raise questions.

Finding lenders who work with lower credit scores

Not all lenders have the same credit score requirements. Banks often have stricter floors than credit unions or mortgage brokers. Call or visit websites for at least three to five lenders and ask directly: "What is your minimum credit score for an FHA loan?" and "What rate would I get at my score?"

Credit unions sometimes offer better rates to members with lower scores. If you belong to one, ask whether they have an FHA program. Mortgage brokers can shop multiple lenders at once, which saves time, though they charge a fee — usually 0.5 to 1 percent of the loan amount.

When you contact lenders, ask about their overlays — additional requirements they add on top of FHA rules. One lender might require a 620 score; another might accept 580 but demand a 10 percent down payment and proof of six months of savings. Overlays vary widely and are worth comparing.

What to prepare before you apply

Gather documents before you contact lenders. You will need two years of tax returns, recent pay stubs, bank statements showing your down payment savings, and a list of your debts with current balances. If you have had late payments or collection accounts, write a brief explanation — lenders call this a letter of explanation. Be honest and factual: "I missed a payment in 2022 because of a job loss, but I have been current for 18 months since" is more persuasive than silence.

Get pre-approved, not just pre-may have access to. Pre-approval means a lender has actually reviewed your documents and committed to lending you a specific amount. Pre-qualification is just an estimate. Pre-approval shows sellers you are serious and gives you a real picture of what you can afford.

Frequently Asked Questions

Can I get an FHA loan with a 550 credit score?

Some lenders will work with scores as low as 500, but it is rare and comes with trade-offs: a 10 percent down payment, a higher interest rate, and stricter debt-to-income limits. Most borrowers in this range benefit from waiting a few months to rebuild their score to 580, which opens up better terms and lower down payments.

How long does it take to raise my credit score by 50 points?

It depends on what is dragging your score down. Paying down credit card balances can raise your score by 20 to 30 points in one or two billing cycles. Correcting errors on your report can happen in 30 days. Late payments age off your score gradually over time. Most people see meaningful improvement within three to six months of consistent on-time payments and lower balances.

Will applying for an FHA loan hurt my credit score?

A mortgage inquiry (called a hard pull) lowers your score by a few points, usually 5 to 10. Multiple inquiries from different lenders within 14 days count as one inquiry, so shop around without penalty. The impact is temporary and fades within a few months.

What if I have recent late payments but need to buy now?

You can still find lenders, but expect a higher interest rate and stricter terms. Write a letter of explanation for each late payment and be prepared to put down 10 percent or more. Some lenders require late payments to be at least 12 months old; others will work with you sooner if the rest of your profile is strong. Call multiple lenders to find one willing to work with your timeline.

Does paying off collections accounts improve my credit score?

Paying off a collection account does not remove it from your report, but it changes the status to "paid" rather than "unpaid," which lenders view more favorably. The account stays on your report for seven years from the original delinquency date, but its impact on your score weakens over time. Paying it off before you apply is still worth doing.