What Is the Average Credit Score for FHA Home Loans?

According to the HUD website, home loans which are FHA-insured make it easy for lenders to issues mortgages with less difficult credit qualifications whilst requiring low rates of down payment and closing costs. This makes the FHA home loan program one of the most sought-after options by home buyers who have low credit scores.

Lower credit scores for FHA home loans

According to a survey by Home Buying Institute, on average, borrowers need a 620 to 640 minimum credit score in order to get a loan with most home loan lenders. This could be bad news for borrowers falling below that range and looking to buy a home in 2015. Also, most of the lenders do not just consider the credit scores but also the full financial background of the borrower making it even harder for people to get home loans.

However, obtaining a home loan with the FHA doesn’t have to be that hard. The credit scores are much lower compared to other conventional sources when you look at a number of factors:

  • Identification

The FHA home loan program doesn’t have any set minimum credit score requirement for FHA mortgage approval. If you apply and you have a score of below 620 it’s possible to determine eligibility by undergoing manual underwriting. This process evaluates you on your credit history and therefore you may be required to bring to the table additional documentation and paperwork.

  • Considerations

Standard mortgages insured by FHA require a minimum down payment amount of 3.5% of the total price. To get the home loan with that amount of down payment, a buyer needs to have a FICO credit score not lower than 580. This score was initially 500 but the HUD raised it to 580 in 2010.

  • Alternatives

If you have a credit score lower than 580 and you still want the loan then your down payment amount has to be at least 10% of the price. A HUD news release explains that the requirement for higher down payment’s an alternative for prospective homeowners who have low credit scores.

  • Potential

The financial crisis of 2007 to 2008 made FHA-insured home loans be the first option for borrowers with a low credit score when buying their homes. However, increasing the down payment required for applicants with a credit score less than 580 makes it harder for them. If you fall under this category therefore, you need to work on your credit score or save up for a larger down payment amount.

  • Costs

To obtain the FHA home loan you also need to pay upfront and MIP of 2.25%. However, good news is that you can have this included in the loan and it doesn’t necessarily have to be added to the down payment. The FHA home loans also require an annual insurance premium that needs to be paid monthly with the house payment.

Importance of credit scores

In case you are wondering why these three-digit numbers are so important, especially to lenders, it’s because they need to make sure that you (the borrower) are responsible and will pay up. One of the best way they can determine your responsibility is if they look at your history and patterns of borrowing. The credit scores are on this basis: history and patterns.


Compared to other mortgage programs, the FHA home loan’s definitely one of the top options to consider. This’s because of the low credit score requirements in getting the loan. Also, considering the down payment rate and the low closing costs, it becomes a provision for a prospective homeowner to worry less when buying their dream home.