If your credit score falls below 620, you might assume that buying a home is off the table. But in 2025, that’s not entirely true — especially if you're exploring FHA loans, which were designed to help first-time and low-credit borrowers access homeownership. Backed by the Federal Housing Administration, FHA loans are one of the few mortgage options available to those with credit scores as low as 500. That said, the process isn’t automatic. Lenders apply their own criteria, and many borrowers fall into common traps — misunderstanding minimum requirements, failing to shop for flexible lenders, or not preparing for higher down payments.
This guide breaks down what FHA loans look like for credit scores between 500 and 619, including how to qualify, where to find lenders, what to avoid, and what tools can help.
What Is an FHA Loan and Why Does It Matter?
FHA loans are insured by the Federal Housing Administration but issued by private lenders. Their primary advantage is low credit score flexibility and reduced down payment requirements compared to conventional loans.
“FHA loans were built to support borrowers with less-than-perfect credit,” says Nicole Thomas, a mortgage broker in New Jersey. “But approval depends heavily on lender overlays and documentation.”
Credit Score Tiers and FHA Loan Options
Here’s how FHA guidelines break down by score:
✅ Scores between 580–619
Down payment: Minimum 3.5%
DTI ratio: Typically up to 43%, sometimes higher with compensating factors
Conditions: Need steady income, verifiable employment, and lower debt levels
Available from most FHA-approved lenders
⚠️ Scores between 500–579
Down payment: Minimum 10%
DTI ratio: Usually capped at 31/43
Stricter underwriting: Lenders may require manual underwriting, no recent late payments
Fewer lenders: Many institutions set internal minimums of 580+
Keep in mind: A credit score is only one part of the equation. Employment history, debt-to-income ratio, and housing expense ratio all factor into approval.
Where to Find FHA Lenders for 500–619 Scores
Not all FHA-approved lenders serve borrowers in the 500–579 range. These platforms can help you match with more flexible institutions:
FHA.com Lender Finder – Connects users with approved lenders in their zip code
HUD Lender Search Tool – Official FHA-approved lender database
LendingTree and Credible – Compare FHA loan rates side-by-side
Local Credit Unions – Some offer more lenient requirements and community support
Non-bank lenders – Companies like Carrington Mortgage and NewRez are known for low-score acceptance
“Some lenders will advertise FHA options but quietly set 580 or 600 as their real minimum,” warns Alicia Reynolds, a housing counselor with the National Foundation for Credit Counseling. “It’s essential to ask about their overlays.”
Costs and Terms to Expect with Lower Credit FHA Loans
Borrowers in this range should be prepared for:
Higher interest rates than those with 620+ scores
Upfront mortgage insurance premium (UFMIP) of 1.75%
Monthly MIP of 0.45%–1.05% depending on loan size and down payment
Closing costs: Typically 2–5% of the loan amount
Required escrow accounts for taxes and insurance
These costs are manageable — but often underestimated during preapproval.
Common Mistakes and What to Avoid
1.Applying before reducing DTI ratio – Many denials come from high monthly debt loads, not credit score
2.Assuming online preapprovals are accurate – They often don’t reflect manual underwriting realities
3.Skipping pre-purchase counseling – Free programs can help prepare you and improve your credit
4.Not budgeting for upfront costs – Especially if required to put down 10%
5.Forgetting to check lender overlays – Just because FHA allows 500 scores doesn’t mean every lender will
Frequenty and Questions
Q: Can I get approved for an FHA loan with a 500 credit score?
A: Yes, FHA guidelines allow scores as low as 500 — but you must put at least 10% down and find a lender who accepts that score.
Q: What if I have a 580 credit score?
A: You may qualify for only 3.5% down, depending on your other financial factors.
Q: Will improving my credit score from 580 to 620 make a difference?
A: Yes — it can improve your interest rate, lower insurance premiums, and increase your approval odds.
Q: Do I need a co-signer with bad credit?
A: Not necessarily, but a co-borrower with stronger credit may help strengthen your application.
Q: What if my lender says no?
A: Try multiple lenders, especially non-bank mortgage providers or credit unions with manual underwriting flexibility.