FHA Loan Credit Requirements: What Credit Score Do You Need?
Updated: 5 days ago
One of the reasons FHA financing is so useful is that it can provide a path to homeownership for borrowers who don’t have perfect credit.
But there is a common misconception that FHA loans are simply for people with “bad credit.”
That’s not really the case.
FHA financing has specific credit requirements, but the approval process looks at much more than a single credit score. Payment history, outstanding debts, collections, previous credit events and how you’ve managed your credit recently can all be important.
So what does your credit actually need to look like to qualify for an FHA mortgage?
What Credit Score Do You Need for an FHA Loan?
Under FHA guidelines, borrowers with a Minimum Decision Credit Score of 580 or higher may potentially qualify for FHA’s maximum financing, which generally means a down payment as low as 3.5%.
FHA guidelines can also permit financing with a credit score between 500 and 579, but the maximum loan-to-value is generally 90%, meaning at least a 10% down payment is required.
However, there’s an important distinction between FHA guidelines and an individual lender’s requirements.
A lender may establish its own minimum credit-score requirements that are higher than FHA’s minimum. These additional requirements are often referred to as lender overlays.
So hearing that “FHA allows a 500 credit score” doesn’t necessarily mean every FHA lender will approve a loan with a 500 score.
FHA Looks at More Than Your Score
Your credit score is important, but it doesn’t tell the entire story.
FHA underwriting also considers how you’ve handled your financial obligations.
For example, we may look at:
Housing and mortgage payment history
Credit card and installment debt
Collections and charge-offs
Judgments
Disputed accounts
Federal debt
Bankruptcies or foreclosures
Overall pattern of credit use
HUD’s FHA underwriting framework specifically addresses these areas as part of evaluating borrower credit.
That’s why two borrowers with the exact same credit score can have very different mortgage applications.
Do Collections Have to Be Paid Off for an FHA Loan?
Not necessarily.
Having a collection account does not automatically prevent someone from obtaining FHA financing.
Depending on the type and amount of the collection, FHA guidelines may allow it to remain unpaid. However, certain aggregate collection balances can affect the borrower’s qualifying debt calculation, and the lender still has to evaluate whether the credit history represents an acceptable risk.
Medical collections are treated differently from many other types of collection accounts.
This is one reason I don’t recommend automatically paying off old collections before having your credit reviewed for a mortgage.
Paying something off isn’t always necessary, and making changes to old accounts can sometimes affect your credit profile in ways you weren’t expecting.
What About Late Payments?
A late payment doesn’t automatically disqualify you from an FHA mortgage either.
What matters is the overall pattern.
An isolated late payment from some time ago is very different from several accounts that are currently delinquent.
Recent housing payment history can be particularly important. The lender is trying to determine whether the borrower has demonstrated the ability and willingness to manage financial obligations.
If you’ve had credit problems in the past but have since established a consistent history of paying everything on time, that can make a meaningful difference.
Can You Get an FHA Loan After a Bankruptcy?
Yes. A previous bankruptcy does not mean you can never qualify for FHA financing.
For a Chapter 7 bankruptcy, FHA generally requires at least two years to have elapsed since the discharge date. In certain documented circumstances, a shorter period may be considered when the bankruptcy resulted from circumstances beyond the borrower’s control and the borrower has since demonstrated responsible financial management.
Chapter 13 is different.
A borrower who is still making payments under a Chapter 13 repayment plan may potentially qualify for FHA financing after at least 12 months of the payout period if required payments have been made on time and the borrower receives any required permission from the bankruptcy court.
So you don’t necessarily have to wait until a Chapter 13 has been discharged before buying a home with FHA financing.
How Long After a Foreclosure Can You Get an FHA Loan?
FHA generally requires three years to have passed since the date the borrower’s ownership interest in the property was transferred following the foreclosure.
Exceptions may potentially be available in certain documented circumstances.
Again, the exact dates matter.
The date someone stopped making payments isn’t necessarily the date used to determine FHA eligibility.
What About a Short Sale or Deed-in-Lieu of Foreclosure?
A previous short sale or deed-in-lieu of foreclosure doesn’t automatically prevent FHA financing either.
Generally, FHA applies a three-year waiting period from the date of the short sale or deed-in-lieu.
Certain exceptions may apply depending on the circumstances surrounding the event and the borrower’s mortgage payment history.
This is an area where reviewing the actual documentation and dates can be particularly important.
What If You Have Student Loans?
Student loans don’t necessarily hurt your credit simply because you have them.
However, they can affect your debt-to-income ratio, which is separate from your credit score.
FHA has specific requirements for determining the monthly obligation associated with student loans, including situations where the credit report shows a very small payment or no payment.
So having significant student loan debt doesn’t automatically mean you can’t qualify. We need to determine what monthly payment FHA requires us to use when calculating your qualifying ratios.
Federal Debt Can Be Different
One area borrowers should pay particular attention to is delinquent federal debt.
Certain delinquent federal obligations can create an FHA eligibility issue that is very different from having an ordinary collection account.
For example, borrowers may need to resolve certain delinquent federal debts or establish an acceptable repayment arrangement before becoming eligible.
This is another reason it’s important to review the entire credit profile rather than focusing solely on the score.
Should You Pay Off Credit Cards Before Applying for an FHA Loan?
Maybe—but don’t automatically do it.
If your credit card balances are high relative to their limits, reducing those balances could potentially improve your credit score and lower your monthly debt obligations.
That can potentially help both sides of the mortgage qualification equation.
But if you have limited cash available, we also have to consider how much you’ll need for:
Down payment + closing costs + reserves + moving expenses
Sometimes paying $10,000 toward debt makes sense.
Sometimes keeping that $10,000 in the bank makes more sense.
Before moving large amounts of money around, I prefer to look at the complete mortgage scenario.
FHA Can Be More Forgiving, but Credit Still Matters
FHA financing can be an excellent option for borrowers who have had some bumps in their credit history.
But “FHA is more flexible” shouldn’t be confused with “credit doesn’t matter.”
It does.
The difference is that FHA guidelines can give us more room to evaluate the whole borrower rather than expecting every applicant to have a spotless credit history.
Someone may have:
A lower credit score.
An old collection.
A previous bankruptcy.
A foreclosure several years ago.
A few late payments from a difficult period.
None of those facts, by themselves, necessarily mean homeownership is off the table.
The important questions are what happened, when it happened, what has happened since, and what the rest of the financial picture looks like.
The Bottom Line
You don’t need perfect credit to qualify for an FHA mortgage.
A 580+ score can potentially allow FHA’s minimum 3.5% down payment, while FHA guidelines provide options for certain borrowers with scores between 500 and 579 with a larger down payment. Individual lenders can have stricter requirements.
More importantly, your credit score is only one part of the analysis.
If you’ve had credit challenges, collections, late payments, bankruptcy or a foreclosure in the past, don’t automatically assume you can’t buy a home.
Sometimes the borrower is already eligible.
Sometimes there is a specific waiting period we need to satisfy.
And sometimes a few strategic changes can put the borrower in a much stronger position.
The goal isn’t perfect credit. It’s understanding where you are today and determining the best path forward.
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