our everyday life

FHA Credit Score Limits

by Don Rafner

Mortgage loans insured by the Federal Housing Administration -- better known as an FHA loan -- come with a major benefit to cash-strapped homebuyers; such mortgages require lower down payments than do most other mortgage loans. But, to qualify for an FHA-insured loan, your three-digit credit score must be high enough.

FHA Loan Benefits

Most buyers who qualify for an FHA-insured mortgage loan only have to come up with a down payment of 3.5 percent. By contrast, while conventional lenders vary, many require down payments ranging from 5 percent to 20 percent of the final purchase price of a home. For a house that costs $150,000, a down payment could run from $7,500 to $30,000. If you are taking out an FHA-insured loan, though, your down payment on that $150,000 house would amount to $5,250.

Down Payment Credit Score

To qualify for an FHA loan, you'll need a credit score on the FICO scoring system of at least 580. The good news? This score isn't overly difficult to obtain. Most conventional lenders consider a score of 740 or higher to be a good one. Be aware, though, that your lender might charge you a higher interest rate if your credit score is below that 740 level, even if you are applying for an FHA-insured mortgage loan.

Bare Minimum Credit Score

You may still qualify for an FHA-insured mortgage loan even if your credit score is under 580. The FHA requires that you have at least a score of 500. If your score is under the 580 mark, you still may be approved, but you'll have to come up with a larger down payment, up to 10 percent of your home's purchase price.

Boosting Your Score

Your credit score is a reflection of how well you've managed credit and your finances in the past. Your score may be lower if you have a history of paying credit-card bills late, missing auto-loan payments or reaching the maximum limits of your credit cards. You can improve your credit score by paying your bills on time and reducing as much credit-card debt as possible. This takes time, though; don't believe any company that promises it can boost your credit score in days. It takes months of good spending habits to improve your credit score even marginally. If your score is too low, you might have to wait a year or longer before you qualify for an FHA-insured mortgage loan.

About the Author

Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.