FHA loans are the most accessible mortgage for bad credit buyers — the government insures the loan, so lenders accept scores as low as 500 with 10% down or 580+ with just 3.5% down. If you have bad credit and want to buy a home, FHA is almost always your starting point. This guide covers every requirement, every cost, and every step to get approved.
Minimum credit score for FHA with 10% down — lowest of any mainstream mortgage program
Minimum down payment for FHA loans with 580+ credit score
Maximum DTI ratio FHA allows with compensating factors
Mortgage Insurance Premium — required on all FHA loans, adds $80–$200+/month
Most FHA lenders work with this tier. Best terms available under FHA.
Fewer lenders accept this tier. Must specifically seek 500-score FHA lenders.
FHA will not insure loans below 500 FICO. Must rebuild score first.
| Cost Item | Amount | When Paid | Notes |
|---|---|---|---|
| Upfront MIP (UFMIP) | 1.75% of loan amount | At closing | Can be rolled into loan balance |
| Annual MIP — 3.5% down | 0.55%/year (lifetime) | Monthly forever | Never cancels at <10% down |
| Annual MIP — 10%+ down | 0.55%/year | Monthly | Cancels after 11 years |
| Down payment (580+) | 3.5% minimum | At closing | Gift funds and grants allowed |
| Down payment (500–579) | 10% minimum | At closing | Gift funds allowed |
| Closing costs | 2%–6% of loan | At closing | Seller can contribute up to 6% |
Unlike conventional PMI which cancels at 20% equity, FHA annual MIP at 3.5% down never cancels — unless you refinance to a conventional loan. On a $250,000 FHA loan: MIP costs approximately $115/month every month for the life of the loan. Factor this into your total monthly cost when comparing FHA to conventional.
| Factor | FHA Loan | Conventional Loan |
|---|---|---|
| Min credit score | 500 (10% down) | 620 minimum |
| Min down payment | 3.5% (580+ score) | 3%–5% |
| Mortgage insurance | Permanent at <10% down | Cancels at 20% equity |
| Max DTI | Up to 57% (comp. factors) | 43%–50% |
| Property condition | Stricter FHA standards | More flexible |
| Best for | Scores 500–679, low down payment | Scores 680+, more equity/savings |
Get free reports at AnnualCreditReport.com. Dispute errors — even correcting a wrong late payment date can push a 578 score to 582, unlocking the 3.5% down payment tier. Every point matters.
Total monthly debts (minimum payments on all accounts + proposed PITI) ÷ gross monthly income. FHA wants under 43% standard; up to 57% with compensating factors like large reserves or significant down payment.
3.5% down on $200,000 = $7,000. Plus closing costs 2%–6% = $4,000–$12,000. Total cash needed: $11,000–$19,000. Down payment assistance programs can cover part or all of this — check HUD's directory at hud.gov.
Not all lenders accept 500–579 scores even though FHA allows it. Specifically search for "FHA lender 500 credit score" or contact HUD-approved housing counselors for referrals. Search approved lenders at hud.gov/program_offices/housing/sfh/lender.
Requires hard credit pull, 2 years W-2s or tax returns, 30 days pay stubs, and 2 months bank statements showing down payment funds. Pre-approval letter shows sellers you're a serious buyer.
FHA is the insurance program — lenders set their own rates. Shopping 5 lenders within 45 days counts as one credit inquiry (FICO rate-shopping rule). Rate differences of 0.5%–1% are common for the same borrower profile.
The FHA minimum is 500 with 10% down or 580 with 3.5% down. However, individual lenders set their own 'overlays' — many require 580+ even for 10% down buyers. Shop multiple FHA-approved lenders to find one that works with your specific score.
Yes — the FHA program allows 500 with 10% down. Not all lenders participate at this tier, so you need to specifically seek out FHA lenders that accept 500-score applicants. Expect fewer options and potentially higher rates than 580+ applicants.
580+ score requires minimum 3.5% down. 500–579 score requires minimum 10% down. Down payment can come from savings, gift funds from family, or down payment assistance programs — not from personal loans.
For loans with less than 10% down, annual MIP (0.55%/year) never cancels — it's permanent unless you refinance to a conventional loan. With 10%+ down, MIP cancels after 11 years. This permanent MIP is the biggest long-term cost difference between FHA and conventional.
FHA loan limits vary by county based on local home prices — from $498,257 in low-cost areas to $1,149,825 in high-cost markets. Check your specific county's current limit at HUD's loan limit lookup tool at hud.gov.
Our mortgage calculator includes MIP, taxes, insurance, and PMI — see your true monthly PITI before you apply.
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⚠ Disclaimer: FHA loan limits, MIP rates, and program rules are set by HUD and change periodically. Verify current requirements at hud.gov. Lender overlays vary. Not financial advice. See our Disclaimer and Privacy Policy.