FHA guidelines allow a 500-579 FICO score with a 10% minimum down payment. This is a published HUD guideline. In practice, most FHA lenders add overlays requiring 580, 600, or 620 as a floor and will not approve files below their internal minimum regardless of what the guidelines say. A borrower with a 545 FICO needs to find a lender that actually closes at sub-580.
The Overlay Reality
Lender overlays exist because FHA loan performance data shows higher default rates on low-FICO loans, and lenders who originate too many problem loans risk being removed from FHA's approved lender list (HUD's Compare Ratio). Conservative retail lenders, correspondent lenders, and bank-owned mortgage companies almost universally overlay to 580 or higher. Wholesale lenders and some portfolio lenders are more likely to go to 500.
What Sub-580 Borrowers Need
- ✦10% down payment (no exceptions; 3.5% is only available at 580+)
- ✦Manual underwrite likely required since AUS may return a Refer on very low FICO profiles
- ✦Compensating factors are critical: 12 months of on-time rent, minimal discretionary debt, stable employment history
- ✦Reserves: typically 1-3 months PITI required on manual underwrites
- ✦DTI: manual underwrite DTI cap is 31/43 standard, extendable to 37/47 with two compensating factors
Better Path: Credit Repair Before Application
A 500-579 FICO is 1-41 points away from a significantly more lender-accessible 580 threshold. Identify whether rapid rescore, paying down revolving utilization, or removing an erroneous derogatory account can move the score. Even 6-12 months of perfect payment history on one or two open accounts can move a 540 score to 580+. Document the improvement plan and schedule the application at the 12-month mark.
Aria knows which lenders close FHA loans at 500-579 FICO and can also identify the fastest credit improvement path to get a borrower to 580 if that is more realistic. Ask at vicariointel.com.
7-day free trial. No credit card required.
Ask Aria About FHA Options for Sub-580 FICO Borrowers →