FHA Minimum Credit Score Requirements
Technically, you can get approved for an FHA loan with a median FICO® score as low as 500, but an FHA loan with such a low score has serious drawbacks.
The first is that you will need a deposit of at least 10%. Second, when it qualifies with such a low score, it is considered a subprime loan. From a practical standpoint, this means that even if you can get the loan, you won’t get the best deal and could end up with a much higher Annual Percentage Rate (APR).
Additionally, most lenders, including Rocket Mortgage, won’t issue the loan if your median score is below 580. We’ll get to that below.
Finally, you must have very low qualifying ratios. To qualify with a median FICO® score below 580, you need to pay close attention to two ratios: your housing expense ratio and your overall debt-to-income ratio (DTI).
Understanding your housing expense ratio
Your housing expense ratio is the percentage of your gross monthly income that is used for housing expenses. It is calculated as follows:
(Installment debt + Revolving debt payments) / Gross monthly income
The amount spent monthly on housing expenses cannot exceed 31% of your gross income.
Understanding your debt-to-income ratio
Your DTI takes into account your debts, or fixed monthly expenses. It includes your mortgage, minimum credit card payment, student loan, car loan, and other debt. It does not include variable expenses like groceries, utilities, gasoline, health insurance and auto insurance.
The DTI is calculated with the following formula:
Monthly expenses / Gross monthly income
With a median FICO® score below 580, your DTI cannot exceed 45% of your gross monthly income. These two ratios have a major impact on the price of the house you can afford.
In addition to the restrictions stated above, it is important to note that very few lenders offer these subprime FHA loans. At Rocket Mortgage, you must have a median FICO® score of at least 580 to qualify.