The FHA loan program can make homeownership possible even if you have a poor credit score. FHA home loans are backed by the Federal Housing Administration and help people who may not have strong credit or enough money for a down payment afford a home.
Since FHA loans are insured by the government, they reduce the lender’s risk. This means it may be possible for borrowers to get approval for FHA loans even when they have bad credit.
What is the lowest credit score for FHA loans?
Lenders generally want borrowers to have a credit score of at least 540 in order to approve an FHA loan. Your credit score can also affect the amount of the down payment they may require. Many lenders follow these guidelines for credit score and down payment:
|Credit score||Between 540-579||Over 580|
The lower credit scores and down payments can make FHA loans more flexible than conventional loans. Lenders often require a credit score of at least 640 and a minimum down payment of 5% to approve a conventional loan. At Freedom Mortgage, we specialize in FHA loans and we’re dedicated to helping people realize the dream of homeownership.
Applying for an FHA loan with bad credit
If you’re ready 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 process.
Check your credit profile and 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 other debts and, if possible, try to pay these debts down. Payment history is another important part of your credit score. Making regular, on time payments with loans and credit card bills can help persuade lenders to look more favorably on your mortgage application.
Put together a budget.
Especially if you’ve had credit challenges, it’s important to prepare a budget to make sure you can pay off your other debts as well as a new FHA loan. Look at your monthly bills and how much more you will add to them with a new mortgage. A new home comes with more than the monthly mortgage payment. It includes a down payment, homeowner’s insurance, taxes and maintenance. Make sure you have enough to cover all those costs so you don’t impact your credit score further.
Plan for a down payment.
One benefit of an FHA loan is the low down payment. When you put down more money however, you can help increase your chances for approval. The larger your down payment, the less you will pay in interest throughout the life of the loan too. Find out more about how to determine your down payment amount.