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FHA loans for bad credit scores

Buying and refinancing homes with FHA loans

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FHA loans for bad credit scores

The FHA loan program can help you buy or refinance a house even if you have a bad credit score. FHA home loans are backed by the Federal Housing Administration, which allows lenders like Freedom Mortgage to offer loans to customers who may have lower credit scores.

What is the lowest credit score for FHA loans?

You generally need a credit score of at least 540 to qualify for an FHA home loan. Your credit score can also affect the amount of money required for your down payment. Many lenders follow these credit score and down payment guidelines for FHA loans:

Credit score Between 540-579 Over 580
Down payment 10% 3.5%

If you have a lower credit score and smaller down payment, FHA loans may be more affordable than conventional loans. Lenders often require a credit score of at least 620 and a minimum down payment of 5% to qualify for a conventional loan.

Keep in mind you will need to meet credit, income, and financial requirements to get approved for an FHA loan. Read more about the requirements for FHA loans.

Can you refinance an FHA loan with bad credit?

FHA homeowners with lower credit scores may still be able to refinance using the streamline program. This program allows you to replace your current FHA loan with a new FHA loan that has a lower rate or better terms. These refinances feature less paperwork, more flexible credit standards, and faster closings.

Lenders often require a minimum credit score of 540 to qualify for an FHA streamline refinance. At Freedom Mortgage, we help FHA homeowners refinance with an easy credit qualification. You will need to meet our financial requirements to get your refinance approved. You need to be current on your mortgage payments and have a recent history of paying your monthly bills on time. Refinancing also must result in a real benefit, such as lowering your interest rate which reduces your monthly mortgage payment.

We are the #1 FHA lender in the US1 and we are currently offering streamline refinancing with no lender fees*. Learn more about FHA streamline refinances with Freedom Mortgage.

Applying for an FHA loan with poor credit

If want to apply for an FHA home loan but are concerned about your credit score, here are things you can do to prepare for the application.

Check your credit report and credit score

Your credit report includes how much debt you have from things like auto loans and credit cards. Before you apply for an FHA loan, check your credit report as well as the balances on your other debts. Try to pay these debts down if you can.

Payment history is another important part of your credit score. Making regular, on time payments for loans and credit card bills can help lenders look more favorably on your mortgage application.

Put together a budget

When you are buying a house, it’s important to make a budget to help you decide how much home you can afford. You’ll want to be confident you can afford your monthly mortgage payment as well as the other bills you need to pay.

Your monthly mortgage payments include interest, principal, homeowner’s insurance, property taxes, and mortgage insurance premiums when you have an FHA loan. Use our mortgage affordability calculator to help you estimate how much home you can afford.

Plan for a down payment

One FHA loan benefit is the low down payment requirement. You can increase your chances of having your loan application approved by making a larger down payment on your FHA loan, however. Plus, making a larger down payment will save on interest payments, because you will borrow less money to buy your home.

Ask Freedom Mortgage about FHA loans

Freedom Mortgage is the #1 FHA lender1 in the United States. We’re dedicated to helping you buy or refinance a home with FHA loans. Ask us if we can help you. Visit our Get Started page or call one of our helpful Loan Advisors at 877-220-5533.

* No lender fees will be charged. However, you will be responsible for paying applicable costs or fees, such as for escrows, per diem interest, and government recording.

1. Inside Mortgage Finance, January to September 2020.

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