Getting an FHA Loan with a 500 Credit Score: Is It Possible?
Buying a home with a low credit score may seem out of reach—but thanks to FHA loans, it’s not impossible. In fact, the Federal Housing Administration (FHA) makes it possible for buyers with credit scores as low as 500 to still qualify for a mortgage, under certain conditions.
In this guide, we’ll break down:
- Whether it’s realistic to get an FHA loan with a 500 score
- What trade-offs come with it
- How it compares with other mortgage options
- And how to improve your chances of approval
Can You Get an FHA Loan with a 500 Credit Score?
Yes—but there’s a catch.
You can qualify for an FHA loan with a credit score between 500 and 579, but you must:
- Make a minimum down payment of 10%
- Show consistent income
- Have low debt-to-income (DTI) ratio
Compare that to buyers with a 580+ credit score, who only need a 3.5% down payment.
How FHA Loans Compare to Other Mortgage Options
| Feature | FHA Loan (500–579 score) | FHA Loan (580+ score) | Conventional Loan |
|---|---|---|---|
| Credit Score Required | 500 minimum | 580 minimum | 620+ |
| Down Payment | 10% | 3.5% | 5%+ |
| PMI (Mortgage Insurance) | Required | Required | May cancel after 20% equity |
| Approval Flexibility | High | High | Low (strict on credit, income) |
Real-World Insight: What Lenders Look For Beyond Credit Score
Most people assume credit score is everything, but FHA-approved lenders also evaluate:
- Debt-to-Income Ratio (DTI): Preferably under 43%
- Employment History: 2+ years of consistent income
- Bank Statements: Proof you can cover the down payment + closing costs
- Payment History: Recent payment delinquencies can hurt your chances
What Documentation You’ll Need
Be prepared to show:
- Recent pay stubs and tax returns (2 years)
- Bank statements
- W-2s or 1099s
- Driver’s license or ID
- Proof of down payment funds (especially if getting help from a relative)
Tip: If someone is gifting you the down payment, the lender will need a gift letter to confirm the money isn’t a loan.
Pros and Cons of FHA Loans with a 500 Credit Score
Pros:
- You’re not shut out of homeownership even with poor credit
- Government-backed, which means lenders are more open to taking the risk
- Can use gift funds for down payment and closing costs
- Fixed interest rates, offering stability
Cons:
- Higher down payment (10%)
- Mortgage Insurance Premium (MIP) is required and can’t be canceled
- Fewer lenders offer loans for scores under 580
- May pay a higher interest rate
Tips to Boost Approval Odds (Without Waiting Years)
- Pay off small debts – Even a few hundred dollars can quickly improve your score.
- Add a co-borrower with better credit – This can improve your approval chances or loan terms.
- Look into down payment assistance – Many local programs offer grants or forgivable loans.
- Shop multiple FHA-approved lenders – Some specialize in lower-credit borrowers.
Frequently Asked Questions (FAQ)
Can I get an FHA loan with recent collections or late payments?
It depends. If the collections are medical or under $2,000, they may be overlooked. But recent late mortgage or rent payments will likely disqualify you.
How long does it take to get approved?
Once all documents are in, approval can take as little as 2–3 weeks. The more organized you are, the faster the process.
Is it better to wait and improve my score first?
If you can raise your score to 580+, you’ll only need a 3.5% down payment. But if rent is high and prices are rising, acting now may still be smart—just prepare for the 10% down.
Final Thoughts: Is It Worth It?
Getting an FHA loan with a 500 credit score is possible, but it’s not easy—and it’s not cheap. Still, for many, it’s a door into homeownership that wouldn’t otherwise exist.
If you have a steady income and can manage the 10% down payment, an FHA loan might be your best bet. But take your time to:
- Compare lenders
- Understand the long-term cost of MIP
- And ideally, work on boosting your score for better future refinancing options