Your credit score plays a big role in the mortgage process. It impacts what loans you’re eligible for, what interest rate you’ll get, and in turn, what you’ll pay over the life of your loan.
If you’re getting an FHA mortgage, your score is even more critical. It determines the size of your down payment and the total amount of your up-front homebuying costs.
Are you considering an FHA loan for your home purchase? Make sure you know how your score will affect your home buying experience.
FHA Loan Credit Score Requirements
Most credit scores range from 300 to 850. In general, the better your score, the better the terms and interest rate on your loans.
A credit score of 500 is the bare minimum to qualify for an FHA loan. In order to qualify for the lowest down payment, however, you’ll need a score of at least 580.
While FHA loans generally allow for lower scores than conventional mortgages, most FHA borrowers have scores well above the 500 minimum.
|FHA Loan Borrower Credit Score Distribution|
|Credit Score||Portion of FHA Loan Borrowers|
People with scores between 640 and 679 are making up an increasingly large portion of the FHA loan borrower pool over the last 12 months. Scores also vary between first-time and second-time buyers. According to the Urban Institute, the average credit score for first-time buyers using an FHA loan is 668. For repeat homebuyers, it’s slightly higher, at 673.
Whether you have a prime, near-perfect score or a less-than-stellar one, an FHA loan is likely an option for you
How Credit Scores Impacts FHA Down Payments
You may be able to qualify for an FHA loan with a 500 credit score, but it won’t make you eligible for the FHA’s most affordable options. With FHA loans, your credit score is directly tied to your down payment amount, with lower scores requiring more in up-front costs.
Here’s what your FHA down payment will look like depending on your credit score:
- 579 credit score or lower:10% down payment
- 580 credit score or above:3.5% down payment
To give you an idea of how that shakes out in terms of money, with a 550 credit score, you’d need to put down $20,000 on a $200,000 home. With a 600 credit score, you’d only need $7,000.
In addition to your down payment, your credit score will also influence the interest rate you qualify for. Generally, borrowers with higher credit scores will pay a higher interest rate (and therefore more in interest over the life of the loan.) If your score is on the lower end, you might be ineligible for adjustable-rate or shorter-term mortgage products, as these borrowers present more of a risk to the lender.
How to Get a Better Deal on an FHA Loan
If you want to qualify for the lowest down payment and the lowest rate on your FHA mortgage loan, boost your credit score before submitting your application.
To start improving your score, you should:
- Pay down debts, particularly high-interest ones
- Pull your credit report and resolve any issues or errors
- Pay your bills on time, every time
- Settle any collections or overdue accounts
Getting an FHA Loan: Next Steps
If you’re considering an FHA loan for your future home purchase, pull your credit report, check for and correct any errors. Every American is entitled to a free annual credit report from one of the three major credit bureaus—Experian, Equifax, or TransUnion. While some sites charge a fee to see your credit scores, there are plenty of ways to view your score for free. Check with your bank, credit union, and credit card companies: many offer credit score monitoring as a part of your existing services. Financial budgeting apps like Mint can also help you keep track of your score.
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