Can I Get an FHA Loan With a Credit Score of 600?

Reader question: "I will be buying my first home later in 2011, and I want to use an FHA loan to reduce my down payment expense. Right now, my middle credit score is about 600. Do you think I can get an FHA home loan with a credit score of 600?"

It's possible, but it may be hard to find a willing lender. It will mostly come down to two things: (1) which mortgage lender you use and (2) how "solid" your loan application is. We will talk about both of these things, and a lot more, through the course of this article.

Different Lenders, Different Requirements

Different mortgage lenders have different requirements for FHA home loans. This is true for credit scores, debt ratios, and other aspects of the approval process. Some will allow a credit score of 600 while others won't.

In 2011, most of the information I've read suggests that lenders are looking for a 640 credit score or higher for FHA loans. But Wells Fargo (the largest mortgage lender in the United States) lowered their FHA credit requirements in 2011. They lowered their minimum score from 600 to 500 for some FHA loans. So you would be right on target with a credit score in the 600 range.

Of course, by the end of the year they could change their requirements again. It happens from time to time. That's why I said it depends on the lender you use, among other things.

There's also a discrepancy between the credit score requirements set by the FHA and those that are imposed by mortgage lenders. This brings up the topic of credit score overlays.

Credit Score Overlays FHA Loans

In 2011, we also saw the establishment of clear credit-score guidelines by the FHA. This was something new. In the past, the FHA has left it up to the lender to decide. But going forward, they have specific requirements for a borrower's credit score. According to the Federal Housing Administration, the borrower must have a credit score of 500 or higher to use an FHA loan.

They have another minimum requirement for the size of the down payment. In order to qualify for the 3.5% down-payment program, a borrower will need a credit score of 580 or higher. Since your score is 600, you would obviously qualify for both of these categories.

But these are the FHA's guidelines -- not the lender's. Remember, you're not getting the mortgage directly from the FHA. You are getting it from a mortgage lender in the primary market (such as Bank of America, Wells Fargo, or one of your local banks or credit unions). These companies can establish their own guidelines on top of those set forth by the FHA. These are referred to as "overlays."

Credit scores are a good example of this. Most lenders have credit score overlays that are more strict than the FHA guidelines. For example, the FHA says you can qualify for one of their home loans with a credit score of 500 or higher. But if you walk into a lender's office with a score of, say, 510, I can almost guarantee they will turn you away. As mentioned earlier, Wells Fargo may be one of the few exceptions to this in 2011. So you can think of the government's requirements as a bare minimum, and the lender's requirements as a second set of standards on top of that minimum.

Your Other Qualifications

You might be able to get an FHA home loan with a credit score of 600. But it will also depend on your other qualifications. They're not giving these loans out like candy, like they were during the housing boom. In 2011, FHA borrowers will be scrutinized just like any other mortgage applicant.

We've already talked about the credit score requirements. You will also be required to put at least 3.5% down on the loan. Lenders will also review your income level in relation to your debts. If you have too much debt compared to your monthly income, you might not qualify for the loan. This is referred to as your debt-to-income ratio (learn more here).

So those are some of the most important qualifications when applying for an FHA loan -- your credit score, your debt ratios, and your down payment. Most lenders will also require you to have a certain amount of cash reserves in the bank as well, above and beyond the amount needed for closing costs and down payment.

You can learn more about the 2011 FHA loan requirements on this page.

How to Apply for an FHA Home Loan

So let's assume a credit score of 600 is enough to get an FHA loan. Let's further assume you can afford the down payment, closing costs and cash reserve requirements. What next? How do you begin the application process? In order to apply for an FHA loan, you need to find an approved lender in your area. You can do this in one of two ways. You can visit an online network of lenders and submit an application, or you can visit the HUD website to find FHA lenders in your area.

Once you get in touch with the lender, you will be asked to provide certain financial documents. They will probably ask for bank statements for the last few months, tax returns for the last couple of years, and any other information relating to your debts and income.

The lender will also check your credit score to see if you meet their minimum cutoff for FHA loans. In fact, most of them will probably start with this step. That way, if you don't meet their minimum credit requirements, they won't have to waste anyone's time with all of the other documents.

Disclaimer: This article addresses the question: Can I get an FHA loan with a 600 credit score? Please note that only a mortgage lender can tell you if you meet their loan guidelines. We have answered this question to the best of our ability, based on information available as of March 2011. Please do not view this article as a definitive response. If you want to know if you're qualified for an FHA home loan, you'll have to apply for one. That's the only way to know for