FHA Loans for Low Credit Scores

FHA loans are the most forgiving mainstream mortgage product for borrowers with lower credit scores or limited down payment savings. Here's exactly who qualifies and what the tradeoffs are.

FHA Minimum Requirements

• 580+ FICO: 3.5% minimum down payment
• 500–579 FICO: 10% minimum down payment
• Below 500: Not eligible through FHA
• DTI: Up to 43% preferred; up to 57% possible with compensating factors (high reserves, significant down payment)
• Two years of employment history (or explanation for gaps)

Individual lenders can set stricter requirements (called "lender overlays"). Many FHA lenders require a 620 minimum score even though FHA officially allows 580. Shop multiple FHA lenders if your score is in the 580–620 range.

FHA Mortgage Insurance

The tradeoff for FHA's lenient requirements: mandatory mortgage insurance. All FHA loans require:

• Upfront MIP (UFMIP): 1.75% of the loan amount, paid at closing or rolled into the loan
• Annual MIP: 0.55–1.05% of the loan balance per year, paid monthly

On a $250,000 FHA loan: $4,375 upfront MIP + ~$115–$219/month in annual MIP. Unlike PMI on conventional loans (which cancels at 80% LTV), FHA MIP stays for the life of the loan if you put less than 10% down — unless you refinance to a conventional loan later.

FHA Loan Limits

FHA sets loan limits by county. In 2024, limits range from $498,257 (standard areas) to $1,149,825 (high-cost areas like parts of California, New York, and Hawaii). You can find your county's limit at hud.gov.

The Refinance Strategy

A common playbook: use FHA to buy when your credit is 580–640, make on-time payments for 12–24 months to build your score, then refinance to a conventional loan once you hit 680+. This eliminates the FHA MIP (saving $100–$200/month) and potentially lowers your rate if you qualify for better conventional pricing.

FHA for First-Time Buyers vs. Previous Owners

FHA is not restricted to first-time buyers. You can use an FHA loan if you've owned before, as long as you don't have an existing FHA loan on another property. However, you can only have one FHA loan at a time in most circumstances.

See also: Credit Score for Mortgage | Loan Affordability Calculator