FHA Bad Credit Home Loans

July 3, 2018

Is there such a thing as an FHA Bad Credit home loan? Can borrowers with lower FICO scores qualify for an FHA home loan?

These questions come up frequently, especially for borrowers who have credit mistakes in their past. FHA home loan rules governing qualifying FICO scores are found in HUD 4000.1 and address specific credit score ranges potential borrowers should be aware of.

FHA Home Loan FICO Score Requirements for the Lowest Down Payment

For maximum financing and the lowest possible down payment requirement under the FHA loan program’s rules, borrowers should come to the FHA mortgage loan application process with a credit score of 580 or higher.

Those are FHA loan rules as specified in HUD 4000.1, and should never be confused with any additional lender requirements. In general, house hunters will find that lenders may require FICO scores in the mid-600s for the lowest down payment on an FHA mortgage.

But that is not to say that a borrower is ineligible for an FHA mortgage with a credit score lower than the lender minimum or the FHA minimums for maximum financing.

FHA Loan FICO Score Rules for Lower Credit Scores

FHA loan rules permit borrowers with FICO scores between 500 and 579 to be approved for an FHA mortgage loan but with a higher down payment.

Again, this standard is NOT the lender’s requirements, which may be higher. Borrowers who have bad credit and want FHA mortgage loans should know that any FICO score lower than 500 is not eligible for an FHA mortgage loan or refinance loan.

Bad Credit FHA Loans?

Technically speaking, the FHA loan program does not have a “bad credit loan” provision. THe FICO score ranges mentioned above are the specific credit score numbers required for an FHA mortgage loan with the lowest down payment or an adjusted down payment based on the lender’s assessment of you as a credit risk as related to your credit history.

Your lender may have home loan products that address bad credit issues, but these loans usually require higher interest rates, higher down payments, or other compensating factors.
All borrowers to be obligated on an FHA mortgage including co-borrowers who occupy or choose not to occupy the home.

If you have concerns about bad credit, it’s a very good idea to get credit counseling and/or housing counseling help from a HUD approved agency. You can call the FHA/HUD directly at 1-800 CALL FHA to get a referral to a housing counseling agency in your area.

If you seek credit counseling, it may be a very good idea to check to see what services (free or otherwise) are offered by the three major credit reporting agencies; Equifax, Experian, and TransUnion.

Your credit card company may also offer help in the form of credit monitoring or other services. Some of these may require a fee, but be sure to ask what free services may be available. In the wake of significant hacks on major corporations in the last few years, there may be free credit services offered to you as a potential or actual victim of such problems.

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