FHA Changes Credit Requirements

• In October 2010, the FHA set new requirements for FICO credit scores on FHA loans. Prior to the announcement, the FHA did not have formal credit score requirements for approving loan applications. The absolute minimum credit score for an FHA loan is now 500. Loan applicants with credit scores at the low end of the FHA acceptable range have additional restrictions on the amount of loan they can obtain.
  
  

Maximum Loan Amount

• The loan amount on an FHA home loan can be up to 96.5 percent of the purchase price. This means the buyer will pay a down payment of 3.5 percent of the price. To qualify for a loan at the FHA maximum percentage, the loan applicant must have a credit score of at least 580.
  
  

Low Credit Score Down Payment

• FHA loan applicants with credit scores between 500 and 580 must pay a down payment of at least 10 percent of the home's purchase price. A loan applicant with a credit score below 580 must come up with a down payment almost three times as large as an applicant with a score above 580. The 500 limit credit score does offer home buyers with very low scores a way to finance a home, but the higher down payment will make it more difficult to actually complete a home purchase.
  
  

Lender Requirements

• A September 2010 article on the Seeking Alpha website by CPA Bill Zielinski notes that mortgage lenders can set higher credit score limits for FHA mortgages. At that time most lenders had a minimum credit score of 640 for FHA insured mortgage applicants. The reason given for the higher credit score requirements is that lenders have an easier time to sell mortgages from better qualified applicants.