Are you looking to purchase your first home but worried you may not have a high enough credit score to qualify for a mortgage? Most conventional mortgage loans, for example, require a minimum credit score of at least 620; however, FHA minimum credit score requirements are more lenient.
While it’s true the higher your credit score, the better loan terms you’ll enjoy, having a lower score doesn’t necessarily exclude you from homeownership, particularly if you consider a Federal Housing Administration home loan. Unlike conventional mortgages, FHA loans enjoy government backing, meaning lenders are willing to consider borrowers with lower scores.
How low can you go? Let’s have a look at FHA minimum credit score requirements and what those scores mean both for loan qualification and loan terms.
What is the FHA minimum credit score?
If you have a credit score of at least 500, you are eligible for FHA financing. However, only borrowers with credit scores of 580 or above can qualify for maximum financing, meaning a down payment requirement of only 3.5% of the loan value.
If your credit score falls between 500 and 579, you can still qualify for an FHA-backed mortgage, but you’ll only be eligible to borrow 90% of the home’s price.
What determines FHA’s minimum credit score?
You may be wondering how the FHA determines your credit score. Perhaps, for example, you’ve requested copies of credit reports or checked your score through your bank or credit card issuer and found the numbers aren’t always the same.
When it comes to FHA financing, lenders are looking at a number called the Minimum Decision Credit Score (MDCS). Your lender will determine your MDCS in one of the following ways:
- Using the credit score shown on your credit report(s) when all of your reported scores are the same (or when you only have one reported score)
- Taking your median score when you have three different reported scores
- Using the lowest score when two reported scores are different.
In the event you’re applying for an FHA loan with a co-borrower, then the lowest score among the co-borrowers counts as your MDCS.
What if I don’t have a credit score?
If you don’t have a credit score or have a limited credit history, that doesn’t mean an FHA loan is out of the question for you. Lenders will consider borrowers with limited to no credit history for FHA loans—it just requires manual underwriting and a bit more paperwork for you and your loan officer.
If you’re planning to purchase a home, let our OVM Financial experts help. We have a host of online resources, including information on FHA loan qualifications, FHA income limits, and FHA minimum down payments for borrowers. To learn more, give us a call, or start your online application.
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