The FHA loan makes it easy for borrowers to secure funding even if they don’t have perfect credit. Unlike the conventional loan program, which requires at least a credit score of 680, you can get an FHA loan with a much lower credit score. Just how low can your credit score get for you to qualify?

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The Minimum FHA Credit Score

Technically, the minimum FHA credit score is 580. This is 100 points lower than Fannie Mae or Freddie Mac program requires. Credit bureaus consider a 580 credit score fair, which means you could have some negative credit and still get an FHA loan.

If you have a 580 credit score (or higher), you can get an FHA loan with as little as 3.5% down on the loan. In fact, 100% of this down payment (3.5% of the loan amount), can come from someone else in the form of a gift. You don’t have to put any of your own funds into the down payment.

The Exception to the FHA Minimum Credit Score Rule

Now, the FHA has a little known exception to the credit score rule. You may still be able to secure an FHA loan if you have a credit score as low as 500. There’s a difference, though. You won’t be able to put down just 3.5%. If you have a credit score between 500 and 580, you must make a down payment of 10%.

The differences don’t end there, though. Unlike the borrowers that have a credit score of at least 580, you must make at least 3.5% of the down payment from your own funds. In other words, you have to contribute your own money; you can’t accept 100% of the down payment as gift funds.

Other Qualifications for the FHA Loan

The FHA looks at more than your credit score. While it is the first factor, they look at to determine if you are a candidate for the program, you have to have other qualifying factors to actually receive the loan.

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These qualifications include:

• Maximum housing ratio of 31% – This means that no more than 31% of your gross monthly income can cover your principal, interest, real estate taxes, homeowner’s insurance, and mortgage insurance
• Maximum debt ratio of 41% – This means that no more than 41% of your gross monthly income can cover your mortgage plus any other debts that include your car payments, student loans, credit cards, and any installment loan payments
• Stable employment – You should be able to show at least a 2-year stable employment history. If you changed jobs within the last two years, it should be within the same industry and with similar income. If you changed industries, you’ll need to prove that you have what it takes to succeed in that industry.
• Stable income – Your income should be steady over the last two years or even increasing throughout that time. If you changed jobs, your income should be similar. If you took a pay cut, you may have some more explaining to do to get the loan.
• No defaulted federal debt – If you defaulted on any federal loans in the past, you may not be able to get the FHA loan.

The FHA offers flexible guidelines, but you do need ‘decent’ credit in order to get the loan. If you do have a credit score below 580, you may have to look around a little harder for a lender. Not all FHA lenders are willing to give borrowers a loan if their credit score is less than 580. But with a little shopping around, you should be able to find the lender that suits your needs.

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