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FHA Loan Credit Requirements

What Are the Credit Requirements for FHA Loans?
FHA Credit Guidelines - FHA Credit Score Requirements

FHA Loan Credit Requirements for 2018

There are two guidelines discussed here. The first is what the FHA has set forth as credit requirements for 2018, including those related to credit scores, tradelines, and other credit worthiness aspects of an application review. The other are those that are specific to our FHA loan programs. We offer very competitive loan terms of FHA loans. However, we do require a 620 credit score.

FHA Credit Score Requirements 

The minimum credit score requirements for a FHA loan is generally a 580 FICO score or higher. Our FHA loan programs require fair credit (620 or higher).  A credit score of 620-680 is considered “fair” or “average” credit.  If your score is below a 620, you may be able to find another FHA approved lender who can still qualify you (assuming your score is between a 580-620). Some lenders advertise lower scores, but we are not certain of their qualifications.

Our FHA Loan Credit Score Guidelines:

  • 720 or higher – Excellent
  • 680-719 – Good
  • 620-679 – Fair
  • 619 or below – Poor

Related: FHA Loan Debt and Income Requirements

Potential Credit Disqualifications:

There are certain derogatory marks on credit that can prevent you from being approved (even if your credit score is higher than a 620).  This includes foreclosures, bankruptcies, and certain federal debts.

FHA Rules for Bankruptcies

The FHA guidelines regarding past bankruptcies depends on the type of bankruptcy.

  • Chapter 7 – The FHA rules for a past chapter 7 bankruptcy is that a minimum of 2 years must have passed before you are eligible for a FHA loan.
  • Chapter 13 – For a chapter 13 bankruptcy, you must show you are at least 1 year out of the bankruptcy before you can be approved for a FHA loan.

FHA Rules for Foreclosures

The FHA rules are generally that you must be 3 years out of a foreclosure.  However, if the reason for your foreclosure was due to job loss, medical reasons, or other qualifying “extenuating circumstances”, you may be eligible for FHA financing as early as 1 year past your foreclosure date.

FHA Rules for Federal Debts

Depending on the type of federal debt, it may prevent you from being eligible for FHA financing.

  • Tax Liens – As long as you have entered into a payment agreement with the IRS and are in good standing, a tax lien should not prevent you from being approved for a FHA loan.  If you have not entered into a payment plan for your tax liens, this will prevent you from being eligible until they is a satisfactory payment plan or they are paid in full.
  • Non-Tax Federal Debts – Any non-tax federal debt must be paid prior to being eligible for an FHA loan.
  • Student Loans – Having the debt of student loans will not prevent you from being able to finance a home with a FHA loan.  The payments are factored into your qualifying debt-to-income ratios (see below).

You can read more detailed information about FHA loans and federal debts.

Frequently Asked Questions

What is the minimum credit score requirement for FHA loans?
The minimum credit score allowed per the FHA guidelines is a 580. Our minimum score requirement, however, is a 620 middle score. This means the middle of three scores, or the second of two scores.

What are considered “extenuating circumstance”?
The minimum credit score allowed per the FHA guidelines is a 580. Our minimum score requirement, however, is a 620 middle score. This means the middle of three scores, or the second of two scores.

What are qualifying debt-to-income ratios?
There are two different debt-to-income ratio qualifications for FHA loans.  The first ratio (front ratio) is the percentage your new mortgage payment will be compared to your monthly income.  FHA loans allow a maximum of 31% front ratio.  The second ratio (back ratio) is your total monthly debt payments, which includes your new mortgage payment and any potential debts on your credit report, such as auto loans, credit cards, and student loans.  The maximum back ratio FHA loans allow is 43%.  If you do not meet these ratios, you may qualify with adequate “compensating factors”.

What are “compensating factors”?
If you do not meet certain requirements such as the 43% debt-to-income ratio (DTI ratio), you may still get approved if you have what are considered “compensating factors”.  These are other areas of your application that reflect positively on you, which could be high credit scores, long job history, savings, assets, or anything else that factors into your overall perceived “credit worthiness” by the FHA underwriter.

Can I get a FHA loan with a judgement?
The answer to this questions is rather complex. Certain types of judgements that show a lack of ability to manage debts, or a blatant disregard to pay financial obligations can prevent your from being approved for a FHA loan. Any judgement that occurred which was not based on irresponsibility may be overlooked. We recommend starting here to learn more about the HUD/FHA requirements related to judgements on credit reports.

Would you like to see if you qualify and Apply for a FHA Home Loan Online?

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