FHA Loans For Bad Credit Mortgage Options

FHA Loans for Bad Credit

You can totally get an FHA loan even if your credit isn’t perfect—sometimes as low as a 500 score! FHA is super flexible for people who might have had late payments, collections, charge-offs, or other credit issues. It’s a great option if you’ve faced some financial bumps along the way. The key is getting the right approval path (AUS or manual underwriting) with a lender that doesn’t add extra overlays.

What You’ll Learn in This Guide

In this article, you’ll learn:

• The minimum FHA credit score rules (including 500–579 vs. 580+ down payment requirements)
• How late payments affect FHA approvals—and what can improve your chances
• FHA guidelines for collections, charge-offs, judgments, and tax liens
• When a borrower may qualify through manual underwriting
• How the debt-to-income ratio (DTI) works on FHA loans for bad credit and what’s typically allowed
• Why some lenders deny FHA loans due to overlays—and how to find lenders with no overlays

What are the Benefits of FHA Loans

FHA loans are the best and most popular home loan program for borrowers with bad credit, homebuyers with low credit, and borrowers with high debt-to-income ratios. HUD, the parent of FHA, has lenient mortgage guidelines on FHA loans. In the following sections, we will cover FHA loans for bad credit mortgage loan options.  In the following paragraphs, we will cover FHA loans for bad credit.

How To Buy a House With Bad Credit

One of the most frequently asked questions at Gustan Cho Associates from our viewers and clients is can I qualify for a home loan with bad credit? What is the best mortgage loan option for me to get qualified for a home loan with prior bad credit? Can I qualify for a home loan with outstanding collections? Do I have to pay outstanding charged-off accounts for me to qualify for a mortgage loan? What is the lowest credit score I can have before I can get a home mortgage?

FHA doesn’t have a blanket “no late payments in the last 12 months” rule. However, the FHA automated underwriting system is typically more cautious when there are recent late payments—especially within the past 12 months.

Approval depends on the entire file, such as credit score, DTI, savings/reserves, down payment, and the overall trend of your credit. Homebuyers can qualify for an FHA loan with credit scores down to 500 FICO. FHA loans are the most popular mortgage loan option for homebuyers with low credit scores. HUD, the parent of FHA, created lenient mortgage lending requirements on FHA loans with bad credit to promote home ownership for first-time homebuyers and borrowers with bad credit to be able to purchase a home with a low down payment.

Pre-Qualify For a Mortgage With Bad Credit

One of the most commonly frequently asked questions we get at Gustan Cho Associates is whether I have the income but does not have good credit. What can I do to get approved for a mortgage now before home prices keep on increasing?

Who can approve me for a mortgage loan with poor credit and low credit scores? You can have prior bad credit, collections, charge-off accounts, repossessions.

The team at Gustan Cho Associates are mortgage brokers licensed in 48 states with a lending network of 275 wholesale lenders. We have the best of the best wholesale lenders of government and conventional loans with no overlays.

Non-QM Loans

Besides traditional government and conventional loans, Gustan Cho Associates has dozens of non-QM and alternative wholesale lending partners with hundreds of non-prime and non-traditional mortgage programs.

Is there a mortgage lender for bad credit? Are all lenders the same for bad credit mortgage loans? Over 80% of our borrowers at Gustan Cho Associates are homebuyers who were denied by other lenders due to overlays.

The team at Gustan Cho Associates are experts in being able to qualify and approve borrowers with credit scores down to 500 FICO. We will be answering the above questions in detail throughout this blog on mortgage options for FHA Home loans for bad credit.

Can I Qualify For FHA Loan For Bad Credit?

HUD, the parent of FHA, has lenient for bad credit and low credit scores. FHA home loans are best for homebuyers with bad credit, outstanding collections, charged-off accounts, low credit scores, late payments, prior bankruptcy, and foreclosure. The automated underwriting system has been programmed to render an approve/eligile on FHA loans for bad credit. Bill Burg, a dually licensed realtor and mortgage loan originator and an associate contributing editor at Gustan Cho Associates says the following:

Why is it that some lenders will require a 640 credit score for an FHA loan while another lender will take borrowers with credit scores down to 500 FICO?  It is due to lender overlays. Lenders can have their own higher lending requirements above and beyond the minimum HUD guidelines.

HUD, has set the algorithm on automated underwriting system for get an approve/eligible findings for borrowers with late payments in the last 12 months if the borrowers puts a 10% to 20% down payment versus the minimum down payment of 3.5%. In the following paragraphs, we will explain qualifying for FHA loans for bad credit and low credit scores.

FHA 500 Credit Score Lenders

Every lender can have their own credit score requirement on FHA loans. Each lender can have higher lending requirements on FHA loans, called overlays, that is higher than the minimum HUD agency mortgage guidelines. Gustan Cho Associates are mortgage brokers licensed in 48 states including DC, Puerto Rico, and the U.S. Virgin Islands.

The team at Gustan Cho Associates has a national reputation for being able to qualify and approve borrowers with credit scores down to 500 FICO scores.

Not all FHA lenders have the same lending requirements on FHA loans. The best FHA loans for 500 credit score lenders are mortgage companies with no lender overlays. Homebuyers can qualify for FHA loans with credit scores down to 500 FICO. You do not need to pay outstanding collection accounts and/or charged-offs to qualify for FHA loans for bad credit with low credit scores. The following lenders are the best FHA lenders for bad credit:

Best FHA Lenders For Bad Credit

Not all lenders have the same mortgage lending requirements on FHA loans for bad credit. The key to getting an approve/eligible per automated underwriting system (AUS) on FHA loans with low credit scores is to have been timely on all monthly payments for the past 12 months. Borrowers who cannot get an automated underwriting system (AUS) and get a refer/eligible can be eligible for manual underwriting. We will cover more on manual underwriting later in this blog.

What Is The Minimum FHA Loan Credit Score Requirement?

The minimum credit score to qualify for an FHA loan is 500 FICO. For homebuyers with credit scores lower than 580 and down to 500 FICO, a 10% down payment is required. To qualify for a 3.5% down payment home purchase FHA loan, you need a 580 credit score. HUD allows borrowers with credit scores down to a 500 FICO to qualify for an FHA loan.

The minimum credit score for an FHA loan is 500 FICO. However, borrowers with credit scores under 580 require a 10% down payment versus a 3.5% down payment for borrowers with a 580 credit score.

Even though HUD allows borrowers with credit scores under 580 to require a 10% down payment, they need to be eligible by getting an automated underwriting system approval or qualify for manual underwriting guidelines. If borrowers cannot get an approve/eligible per the automated underwriting system and get a refer/eligible per AUS, the borrower may be eligible for manual underwriting. Read More on Minimum Credit Score Mortgage Guidelines

FHA Loan Guidelines on Recent Late Payments

HUD has the most lenient mortgage guidelines on FHA loans for bad credit than any other loan program. You can have outstanding collections and charged-off accounts and qualify for FHA loans. However, in order for you to get an approve/eligible per the automated underwriting system, you need to have timely payments in the past 12 months.

Late payments in the past 12 months are very bad for the automated underwriting system. However, if you put a 10% to 20% down payment on an FHA loan, the automated underwriting system will most likely approve you.

The best way to get an approve/eligible per automated underwriting system (AUS) with late payments in the past 12 months on FHA loans is by putting larger down payments. You can be rest assured that you will get an approve/eligible per automated underwriting system with a 20% down payment with you have late payments in the past 12 months.

FHA Manual Underwriting Late Payments Guidelines

To be eligible for manual underwriting, you need to have timely payments in the past 24 months. There are instances where borrowers can get an approve/eligible per the automated underwriting system with late payments in the past 12 months if they put more money down.

The best mortgage loan program to get an approve/eligible per automated underwriting system is FHA loans. FHA loans will approve borrowers with multiple late payments per AUS if you put a large down payment of 10% to 20% down payment.

VA loans will not budge on late payments in the past 12 months. A 10% to 20% down payment will most likely get an approve/eligible per AUS with recent late payments in the past 12 months. FHA loans for bad credit is very generous with late payments in the past 12 months if you put a large down payment versus the minimum 3.5% required on FHA loans.

Mortgage Options Are For Borrowers With Bad Credit?

There are three government loan programs: FHA, VA, and USDA loans. FHA loans are one of the three government loans available. Government loans are for owner-occupant home financing only. Conventional loans and FHA loans are the two most popular loan programs in the nation.

FHA and VA loans are the two traditional mortgage loans programs that allow borrowers with credit scores down to 500 FICO.

Non-QM loans allow borrowers with credit scores down to 500 FICO but requires a 20% to 30% down payment. Borrowers with prior bad credit, outstanding collections, charged-off accounts, and higher debt-to-income ratio can benefit more from FHA versus conventional loans. FHA loans are more lenient for borrowers with bad credit and credit scores down to 500 FICO. Read More on Mortgage Options For Bad Credit

FHA Loans For 500 Credit Score Homebuyers

Homebuyers can qualify for FHA loans with a 500 credit score. However, not all mortgage lenders will accept borrowers with credit scores down to 500 FICO. Homebuyers can qualify for FHA loans with 500 FICO credit scores. HUD is the best mortgage loan program for borrowers with FHA loans with 500 credit scores.

Although per HUD agency mortgage guidelines allow borrowers with credit scores down to 500 FICO to qualify for an FHA loan, not all lenders will accept borrowers with such low credit. This is because the lender has overlays on 500 credit score borrowers.

The borrower needs to find a lender that has no lender overlays on credit scores down to 500 FICO on FHA loans. Borrowers need to realize not all mortgage companies have the same lending guidelines for FHA loans for bad credit and FHA loans with 500 credit scores. Lenders can have overlays on credit scores. Lender overlays are additional mortgage guidelines above the minimum HUD agency mortgage guidelines.

The Best Mortgage Lenders For FHA Loans For Bad Credit

The United States Housing and Urban Development (HUD) is the parent of the Federal Housing Administration (FHA). FHA has nothing to do with the origination and funding of FHA loans for bad credit.

HUD, the parent of FHA mission is to promote home ownership for first-time homebuyers, borrowers with no credit scores, homebuyers with bad credit and low credit scores. The minimum credit score to qualify for an FHA loan is 500 FICO.

The mission and role of FHA are to guarantee HUD-Approved Lenders in the event borrowers default on their FHA loans. FHA will insure the lender on the loss due to borrower default. In order for HUD to insure FHA home loans, banks and lenders need to follow HUD Guidelines. Read More on Mortgage Lenders With No Overlays

Best Mortgage Lenders For FHA Loans With Low Credit Scores

The best lender to go to qualify for FHA Home Loans For Bad Credit are lenders like Gustan Cho Associates where the lender has no lender overlays on government and conventional loans. More and more borrowers are choosing FHA loans versus any other loan program. FHA loans are more popular now than ever. Not all lenders have the same lending requirements on FHA loans. Some lenders have higher lending requirements than others due to overlays.

Gustan Cho Associates has no overlays on FHA loans. We just go by the minimum HUD agency guidelines and do not add any lender overlays.

FHA loans are the most popular mortgage loan option for bad credit borrowers. FHA loans have the most lenient lending guidelines than any other mortgage program. You can qualify for FHA loans for bad credit with a credit score down to 500 FICO credit scores. FHA loans are a great home loan program for making the dream of homeownership available to first-time homebuyers and those who have had prior bad credit. Read More on FHA Loans For Low Credit Scores

Is It Easy To Qualify For FHA Loans For Bad Credit

Qualifying For FHA loans for bad credit has much more lenient qualifying standards than conventional loans. Borrowers can qualify for an FHA loan with credit scores down to a 500 FICO. To qualify for an FHA loan with a 3.5% down payment, you need a 580 credit score. Borrowers with credit scores under 580 FICO and down to a 500 credit score need a 10% down payment.

The main reason why borrowers cannot get an approve/eligible per automated underwriting system on FHA loans is due to late payments in the past 12 months, high debt-to-income ratio, lack of closing costs, and late payments after bankruptcy and foreclosure.

Homebuyers with bad credit, low credit scores, collections, charge-off accounts, late payments, and high debt-to-income ratios can benefit from FHA loans more than any other loan program. Borrowers with high debt-to-income ratios can qualify for FHA loans for bad credit where otherwise they could not have qualified for other loan programs like conventional loans. FHA Loans For 500 to 620 FICO Borrowers

Not All Lenders Have the Same Guidelines on FHA Loans For Bad Credit

Every mortgage lender has different mortgage lending guidelines for FHA loans. One lender might require a minimum credit score of 640 FICO for their borrowers while others might have a 620 FICO requirement. HUD minimum credit score requirement for 3.5% down payment FHA Mortgages is 580 FICO credit scores.

Over 80% of our borrowers at Gustan Cho Associates are folks who could not qualify at other mortgage companies due to the lender having overlays on FHA loans. Not all lenders have the same lending guidelines on FHA loans.

There are lenders that will even take a borrower with FICO scores as low as 500. Borrowers who get denied by a lender for an FHA loan due to overlays can qualify for FHA loans for bad credit with a lender with no lender overlays. Every mortgage lender has different overlays when it comes to approving FHA loans for bad credit. Gustan Cho Associates has no overlays on government and conventional loans. Read More on FHA Lenders With Bad Credit

FHA Loan Guidelines on Collection Accounts

There are lenders that will approve borrowers who have open and unpaid collections. FHA categorizes collection accounts into two categories. Medical collections and non-medical collections. Most lenders have lender overlays on FHA loans.

Most mortgage companies has higher lending requirements above and beyond the minimum HUD agency guidelines called lender overlays.

HUD guidelines state collection accounts do not have to be paid to qualify for an FHA loan. FHA loans has the most lenient mortgage guidelines when it comes to collection accounts. On non-medical collections with outstanding balances of $2,000 or higher, mortgage underwriters will take 5% of the outstanding collection balance and use it as a hypothetical debt.

Can You Have Accounts In Collections When Buying a House

You do not have to pay the collection account but 5% of the outstanding collection account is used as a hypothetical debt for debt-to-income ratio calculations. Non-medical collections and charged-off accounts do not count. Most lenders will not approve anyone who has an unsatisfied judgment due to overlays on collections. There are two types of collection accounts: Medical and non-medical collections.

HUD Guidelines on collections and charge-off accounts do not require that borrowers need to pay outstanding collections and charge-offs.

Judgments and Tax Liens need to be addressed. You can qualify for an FHA loan with outstanding judgments as long as you have a written payment agreement with the judgment creditor. Same with tax liens. You can qualify for an FHA loan with the IRS with a tax lien as long as you have a written payment agreement with the Internal Revenue Service. You need to have made three timely payments on your payment agreement with the judgment creditor or the IRS.

FHA Loan Guidelines With Judgments

Homebuyers can qualify for FHA loans with outstanding judgments without having to pay the judgment off. Borrowers can do the following to be eligible to qualify for an FHA loan with unpaid judgments:

1. Pay the full judgment amount
2. Settle with the judgment creditors for less than what the judgment is owed
3. Enter into a written payment agreement and made three timely monthly payments

You cannot pay the three monthly payments in full once you have entered into the written payment agreement. Judgments that have passed the statute of limitations can be exempt. However, the borrower needs to make sure the court has expunged the judgment that has passed the statute of limitations. Read More on FHA Loans With Judgments

Can You Qualify For an FHA Loan With a Tax Lien?

Borrowers can qualify for an FHA loan with a federal and/or state tax lien without having to pay the outstanding lien in full. The whole tax lien does not have to be paid. A payment agreement will be required.

Once you have a written payment agreement with the IRS, you need to have made three timely monthly payments. You cannot pre-pay the three months of monthly payments upfront for the sake of qualifying for FHA loans for bad credit.

Homebuyers with unpaid federal and/or state tax liens need to either have a written payment agreement with the IRS and/or state revenue department.

Can I Get an FHA Loan If I Owe Federal Income Taxes?

Copies of canceled checks for borrowers with payment agreements with the Internal Revenue Service and/or state revenue department. Bill Burg, a dually licensed mortgage loan originator and realtor and an associate contributing editor at GCA Forums News says the following:

Borrowers need to have made three months of timely payments after the executed written payment agreement. FHA loans is the only loan program that allow borrowers with an active IRS tax lien to be eligible for a home loan.

You need a written payment agreement with the Internal Revenue Service and have made three timely payments. The three months of monthly payments cannot be paid at once for the sake of qualifying for an FHA loan. The three months of payments on the tax lien need to be paid every month for the three months after the written payment agreement. Read More on FHA Guidelines on Tax Liens

FHA Loans For Bad Credit With High Debt-To-Income Ratio

There are many folks who have great credit and great income but a lot of debt. I have seen borrowers with credit scores of over 800 FICO and long job longevity who could not qualify for a conventional loan but qualify for FHA loans due to higher debt-to-income ratios. Fannie Mae caps debt to income back-end ratio at 50%. Freddie Mac caps DTI at 50%. HUD Guidelines On DTI is 46.9% front end and 56.9% back end to get an approve/eligible. In cases like these, conventional loan borrowers need to turn to FHA loans. Read More on FHA DTI Guidelines

What are the FHA Loan Limits for 2026?

FHA loan limits change every year, and they differ depending on the county. In 2026, the FHA “floor” (the standard limit used in most counties) for a single-family (1-unit) home is $541,287, while the FHA “ceiling” (the maximum limit in designated high-cost counties) is $1,249,125. Your exact FHA loan limit depends on the property’s location and the number of units. To confirm your county’s current limit, use HUD’s official FHA Mortgage Limits lookup tool. Read More on FHA and Conforming Loan Limits

What Are The Basic Requirements For an FHA Loan?

FHA loans are meant to help more people get into homeownership, even if their credit isn’t perfect. While each lender might have their own extra rules, the main FHA guidelines are set by HUD, and they focus on whether you can pay back the loan and keep a stable home.

Basic FHA Loans for Bad Credit Eligibility Requirements

To get an FHA loan, most borrowers will need:

• Minimum credit score

  • 580+ typically qualifies for 3.5% down
  • 500–579 may qualify with 10% down
  • (Some lenders require higher scores due to overlays.)

• Steady income and employment

  • A consistent work history is preferred (often 2 years), but borrowers can qualify with job changes if the income is stable and documented.

• Acceptable debt-to-income ratio (DTI)

  • FHA is generally more flexible than conventional loans.
  • AUS approvals may allow higher DTIs when the overall file is strong (credit, reserves, down payment, and payment history all matter).

• Down payment and funds to close

  • Down payment can come from your own funds, gift funds, or eligible down payment assistance (depending on the program and lender).
  • You’ll also need funds for closing costs unless negotiated as seller credits or lender credits.

• Primary residence occupancy

  • FHA loans are for owner-occupied homes (primary residence), not for investment-only purchases.

• Property must meet FHA standards

  • The home must pass an FHA appraisal verifying safety, soundness, and livability.
  • Certain property issues (peeling paint, roof problems, safety hazards) may require repairs.

Credit “Issues” FHA Often Allows (When Structured Correctly)

One reason FHA is popular for borrowers with past credit challenges is that it may allow:

• Collections and charge-offs (often not required to be paid, depending on the type and totals)
• Prior bankruptcy or foreclosure after waiting periods, and re-established credit
• Higher DTIs than many conventional programs when AUS approves

What Usually Hurts FHA Approvals Most

Even though FHA is flexible, approvals can get more difficult when there are:

• Recent late payments (especially housing-related lates)
• High DTI with limited savings/reserves
• Unverified or unstable income
• Large undisclosed debts or new credit accounts opened during the process

FHA Loan Limits in Standard and High-Cost Areas

FHA loan limits are higher for FHA Loans In Chicago and its surrounding suburbs, FHA Loan Limits in standard median-priced countries in the United States are at $524,225 for single-family units. Many homebuyers who need to purchase a higher-priced home can be priced out of the maximum FHA loan limit and may need to look at other options like conventional or non-QM loans.

What Are The Basic Requirements For an FHA Loan?

FHA loans for bad credit eligibility requirements and guidelines have been updated for 2026. The coronavirus outbreak in February 2020 has changed the mortgage markets. Investors of mortgages on the secondary mortgage bond markets do not want to take risks on mortgages. With the Central Bank lowering interest rates to zero percent, investors in the secondary mortgage markets do not have any appetite for higher-risk mortgages. By higher-risk mortgages, it means mortgages with borrowers with lower credit scores and bad credit.

Can I Shop For The Best Mortgage Rates With Bad Credit?

Due to the attitude of mortgage bond buyers on the secondary markets, most mortgage companies have increased their credit score requirements to higher levels. Bad credit mortgage lenders have different rates depending on each lender. Just because you have low credit scores and bad credit does not mean you are stuck with the first lender that gets you the quote and says they can do the mortgage loan.

Shop for mortgage lenders for bad credit and shop for rates and terms. Most mortgage companies will not accept any borrowers who do not have a 640 to 660 credit score and added a bunch of lender overlays.

However, Gustan Cho Associates have zero lender overlays on government and conventional loans. We still accept and approve borrowers with credit scores down to 500 FICO as long as they can get an approve/eligible per the automated underwriting system. Read More on Shopping For Best Mortgage Rates With Bad Credit

How Long Does It Take To Get an FHA Loan?

It normally takes no more than 30 days to close on an FHA loan from application til closing. The mortgage process on FHA loans for bad credit is straightforward forward starting with the qualification and pre-approval process. Once armed with a pre-approval letter, the homebuyer can go and shop for a home. Once the homebuyer enters into a real estate purchase contract, the loan process begins. The loan officer will work with a mortgage processor and collect updated docs to prepare the file for underwriting.

Steps of The Mortgage Underwriting Process

Once you got an executed written real estate purchase contract, a mortgage processor will get assigned to you. The processor’s job is to gather all the documents required for the mortgage underwriter. The key in getting a quick conditional loan approval with little conditions is for the mortgage processor to make sure all the paperwork is legible and complete. The mortgage underwriting process normally takes 24 to 48 hours once the file has been submitted by the mortgage processor. The mortgage underwriter will issue a list of conditions.

Once the conditions have been turned in, the mortgage loan underwriter can issue a clear to close or may re-condition the file and ask for additional new conditions or kick it back because the original conditions were not met.

Once all the docs have been collected, the mortgage processor will prepare the documents for the underwriter. At the same time, the processor will order the home appraisal. Once the mortgage underwriter has reviewed the file, the underwriter will issue a conditional loan approval. The file goes back to the processor. The processor will clear conditions.

What Are The Steps To Clear To Close In The Mortgage Process

The clear to close is issued by the original mortgage underwriter who issued the conditional loan approval. Once the mortgage underwriter gets all the conditions requested, the underwriter then can issue a clear to close. A clear to close is the last step in the mortgage process prior to closing.

The clear to close is what all involved in the mortgage process hopes for. The clear to close or CTC, is the ticket to the home closing table.

Once all the conditions have been cleared, the file is submitted to the same underwriter for a clear to close. Once the underwriter issues a clear to close, the lender is ready to fund the loan. The lender’s closing department works closely with the title company in scheduling the closing.

Best Lenders For FHA Loans For Bad Credit

Not all mortgage lenders are the same. Some lenders have higher lending requirements, called lender overlays than others on FHA loans. Just because you do not qualify with one lender does not mean you are not eligible to qualify for an FHA loan with a different lender. Remember HUD did not change its minimum agency guidelines.

Lender With No Overlays

Most mortgage lenders have overlays on FHA loans. Lender overlays on FHA loans are additional lending requirements by individual lenders above and beyond the minimum agency mortgage guidelines of HUD. Gustan Cho Associates are mortgage brokers licensed in 48 states with no lender overlays on FHA loans.

If you are told you do not qualify for an FHA loan, find out whether why you were denied. Most lenders will deny a borrower because they do not meet the overlays of the lender that denied the loan and NOT because the borrower does not meet the HUD agency minimum guidelines.

If you meet the guidelines of HUD but are told you do not qualify, go to a different lender with no overlays on FHA loans. It is the lenders that have increased credit score requirements and added stricter lender overlays. This trend is going to continue going into 2023 since investors in the secondary mortgage bond markets have no appetite for borrowers with under 680 credit scores. Read More on Mortgage Process From Application to Clear to Close

What Credit Score Do I Need To Buy a House?

FHA loans are very popular among borrowers with credit scores down to 500 FICO. For FHA loans, many lenders now have lender overlays on credit scores and will require higher than 640 to 660 credit scores on FHA loans. To qualify for a 3.5% down payment home purchase FHA loan, you need a minimum credit score of 580 FICO. Borrowers with credit scores between 500 to 579 FICO require a 10% down payment. This is not HUD Agency Guidelines. HUD, the parent of FHA loans, did not change its minimum credit score requirements.

What Is The Minimum Credit Score For an FHA Loan?

FHA loans have the most lenient credit score requirements than any other government and conventional loan program. The minimum credit requirement is 580 FICO to qualify for a 3,5% down payment home purchase FHA loan.

HUD still allows borrowers with credit scores down to 500 FICO to qualify for FHA loans. The minimum credit score required to qualify for an FHA loan is 500 FICO.

However, per HUD agency mortgage guidelines, borrowers with under 580 credit scores require a 10% down payment. HUD requires any borrower with under 580 credit scores a 10% down payment versus a 3.5% down payment. Per HUD guidelines, for anyone with a credit score between 500 to 579 FICO, a 10% down payment is required versus a 3.5% down for borrowers with at least a 580 credit score.

How Much Money Do I Need To Buy a House?

For borrowers with under a 580 credit score who does not have the 10% down payment, Gustan Cho Associates can help them get to a 580 credit score. The team at Gustan Cho Associates are experts in helping borrowers boost their credit scores and re-establish their credit. Even though HUD did not change its agency mortgage guidelines, most lenders added tighter lending restrictions on FHA loans as well as other mortgage programs.

Over 80% of our borrowers at Gustan Cho Associates could not meet the lending requirements on FHA loans at other lenders due to lender overlays by the mortgage company. Gustan Cho Associates are mortgage brokers licensed in 48 states with no lender overlays on FHA loans.

The good news is that Gustan Cho Associates has not added any lender overlays before, during, or after the COVID-19 pandemic. The business model at Gustan Cho Associates is not having any lender overlays on government and conventional loans. Read More on How Much Money I Need To Buy a House

FHA Loans For First-Time Homebuyers With Bad Credit

The coronavirus outbreak in February 2020 has changed the mortgage markets for borrowers with bad credit and lower credit scores. The good news is borrowers with great credit and higher credit scores can get the lowest mortgage rates in the history of the United States. Mortgage rates on 30-year fixed-rate mortgages are under 3.0%. Prime borrowers with no loan level pricing adjustments can get prime rates as low as 2.25%. Homebuyers can still qualify for bad credit FHA loans. However, before you have a loan officer pull credit, make sure the types of lender overlays they have.

The team at Gustan Cho Associates are experts for helping borrowers get approved for FHA loans for bad credit and low credit scores. We are experts in helping borrowers with credit scores down to 500 FICO get approved for FHA loans for bad credit and credit scores down to 500 FICO.

FHA Home loans for bad credit are the best mortgage loan option for borrowers with outstanding collections, charge-off accounts, late payments, credit scores down to 500 FICO, and homebuyers with high debt-to-income ratio. Gustan Cho Associates has no lender overlays on FHA loans. Gustan Cho Associates are mortgage brokers licensed in 48 states with over 190 wholesale mortgage lenders with no overlays.

Frequently Asked Questions on FHA Loans for Bad Credit

This article about “FHA Loans For Bad Credit Mortgage Options” was updated on March 4th, 2026.