Minimum Credit Score for FHA Loans: The 500 and 580 Thresholds

Editor’s note: This article was updated in spring 2024 to reflect current guidelines.

• The minimum credit score for an FHA loan in 2024 is currently set at 500.
• You’ll need a score of 580 or higher to qualify for the 3.5% down payment.
• Borrowers apply for this program through mortgage lenders, not the government.
• Some lenders set their own credit requirements higher than the FHA’s.

The Federal Housing Administration (FHA) loan program allows borrowers to buy a home with a down payment as low as 3.5% of the appraised value. This program appeals to home buyers who don’t have a lot of money saved for a down payment or have had credit problems in the past.

This guide explains the minimum credit score for FHA loans, how it relates to the down payment, and why some lenders require higher scores.

Minimum FHA Credit Scores: 500 and 580

When you apply for an FHA loan, the mortgage lender will review your credit, debt, and income situation to see if you’re qualified for the program.

And one of the first things they’ll check is your credit score. This three-digit number is based on the information compiled within your credit reports, which are maintained by Experian, TransUnion and Equifax. Credit scores range from 300 to 850, with higher being better.

The official minimum credit score for an FHA loan is 500. But that’s just for eligibility. If you want to take advantage of the 3.5% down payment associated with this program, you’ll need a score of 580 or higher.

Credit scores and other FHA loan requirements can be found in HUD Handbook 4000.1. This is the official handbook for the program, and it’s issued by the Department of Housing and Urban Development.

Here are the current credit score requirements according to HUD:

• Score of 580 or higher: The borrower is eligible for maximum financing of up to 96.5%. This means the down payment can be as low as 3.5%.
• Score between 500 and 579: The borrower is limited to having an initial loan-to-value (LTV) ratio of 90%, which means they have to make a down payment of 10%.
• Score below 500: The borrower is not eligible for an FHA-insured home loan under the current (2024) guidelines.

So, if your credit score is currently at 580 or above, you could qualify for an FHA mortgage loan with a down payment as low as 3.5%. But if your score falls within the middle range mentioned above, you would need to put down at least 10% of the purchase price or appraised home value.

Your Credit History Is an Indicator of Risk

Why does the FHA care about credit scores, anyway? It’s all about statistics!

By reviewing loan performance data collected over time, government housing officials can detect certain risk patterns. The Federal Housing Administration established the 500/580 credit score requirements because borrowers who fall below those thresholds are more likely to default on their loans.

Definition: A default occurs when a homeowner misses one or more of their monthly mortgage payments. Legally speaking, default means that the borrower has breached the terms of their mortgage agreement.

And that brings us back to the subject of credit scores and FHA loans:

• Mortgage lenders view borrowers with higher credit scores as being less risky, so they’re more likely to approve the loan applications.
• Borrowers with lower scores, on the other hand, typically have a harder time qualifying for FHA loans and other mortgage products.

Remember, if you take out a home loan and make a down payment of 3.5%, the lender will end up funding the other 96.5% of the purchase price. So they have a pretty big stake in the game and need to protect their investment. Credit scores and other tools help lenders mitigate risk.

Some Lenders Want to See a Higher Score

To recap, the minimum credit score for FHA loan eligibility is 500. And borrowers need a 580 or higher to qualify for the 3.5% down payment option.

But those are the government’s requirements. Mortgage lenders can establish their own credit score limits, and they often set the bar higher than the Federal Housing Administration.

A credit score in the low-500 range is considered “subprime” and therefore a high level of risk. According to the Consumer Financial Protection Bureau, a credit score of 500 – 619 would make you a subprime borrower.

Some mortgage lenders offer loans to subprime borrowers, while others do not. Borrowers who fall into that category might have to contact multiple lenders to find one that’s willing to work with them.

When a mortgage lender has a higher credit score requirement for FHA loans than the Federal Housing Administration itself, it’s referred to as an overlay.

Definition: The term “overlay” refers to additional requirements or restrictions that a lender imposes on top of the standard guidelines set by regulatory organizations like Freddie Mac or the FHA.

But not all mortgage lenders use overlays. Some lenders might be willing to honor the minimum credit score requirements used by the FHA. That’s why it’s so important for borrowers to shop around.

Other Important Requirements for the Program

FHA loans have other important requirements as well, in addition to the minimum credit scores mentioned above. We’ve covered them at length in a separate article. Here’s a quick recap.

To qualify for an FHA home loan, borrowers typically need to have:

• Enough money in the bank to cover the down payment and closing costs
• Stable income that is likely to continue for at least the next few years
• A debt-to-income ratio no higher than 43% (or 50% for stronger borrowers)
• A home that’s in good overall condition without any health or safety issues
• The ability to pay mortgage insurance, which is required for all FHA loans

If you can check all of these boxes, and you have a credit score of 580 or higher, you could qualify for an FHA loan with a minimum down payment of 3.5%.

Disclaimer: This article is intended for a general audience and does not constitute mortgage or financial advice. Every lending scenario is different because every borrower is unique. Only a mortgage lender can determine if you meet their minimum credit requirements.