Getting Your Credit Score Ready For An FHA Home Loan

FHA loans are offered by the Federal Housing Administration. Though FHA loans are often referred to as first-time home buyer loans, they're actually open to anyone who hasn't purchased a home within the past few years. FHA loans are only for those who intend on living within the residence that they purchase. 

FHA Credit Score Requirements 

The minimum recommended credit score for an FHA loan is 580, but you can get a loan with a less than 580 credit score. If your credit score is less than 580, though, you'll need to put 10% down rather than the traditional 3.5% down payment. 

If you want a 3.5% down payment, it's better to have a credit score well over 580. This is because your credit score can fluctuate from month to month. If your credit score drops below 580 during the home buying process, the sales contract could be canceled. 

Getting Your Credit Score Above 580

580 is fairly low for a credit score; it is considered "lower than average" credit. Most people don't need a particularly good credit score to purchase a home, but they do need to be able to meet income requirements and debt-to-income requirements.

Most people will be able to get their credit score over 580 by:

• Paying off their credit lines so that they have lower than 75% utilization.
• Having a credit history average of over two to three years.
• Not having any collections attached to their accounts (or paying these off).
• Having a mix of credit accounts, including credit lines, student loans, and audit loans.
• Avoiding any requests for new credit.

If you follow the above, you should be able to get a credit score above 580, though credit scores do vary. Things like bankruptcies and prior foreclosures could drag your credit score down. 

Loans for Poor to Bad Credit

Generally, you won't be approved for a conventional loan if your credit score is below 620. However, if your credit score is above 620, you may have additional loan packages available for you. Some of these may even be more attractive than an FHA loan. It's a good idea to consider all of your options before you commit to a single loan package.

An FHA loan is designed to get first-time home buyers and low-income home buyers into a property. You can have your dream house; you just need to do a little work in preparation.