Yes, it is possible to get an FHA loan with a 520 credit score, as the program allows for scores as low as 500. With a 520 score, you will be required to make a 10% down payment instead of the minimum 3.5%. Additionally, you will likely need a debt-to-income (DTI) ratio of 43% or less.
Generally speaking, to get maximum financing on typical new home purchases, applicants should have a credit score of 580 or better. Those with credit scores between 500 and 579 are, according the FHA guidelines, "limited to 90 percent LTV".
The time it takes to raise your credit score from 500 to 700 can vary widely depending on your individual financial situation. On average, it may take anywhere from 12 to 24 months of responsible credit management, including timely payments and reducing debt, to see a significant improvement in your credit score.
For those interested in applying for an FHA loan, applicants are now required to have a minimum FICO score of 580 to qualify for the low down payment advantage, which is currently at around 3.5 percent. If your credit score is below 580, however, you aren't necessarily excluded from FHA loan eligibility.
FHA loan disqualifications often stem from poor credit (below 500), high debt-to-income (DTI) ratios (often above 43%), unstable employment, insufficient funds for down payment/closing costs, or issues with the property itself, like hazards or severe disrepair, plus owing back federal debts or having delinquent student loans. Clearing federal debt, establishing stable income, and ensuring the home meets safety standards are key to overcoming these hurdles, notes FHA.com and The Home Loan Expert.
The FHA 85% rule refers to a past guideline for cash-out refinances limiting the loan to 85% Loan-to-Value (LTV) and a specific rule for identity-of-interest transactions (like buying from family) where borrowers couldn't finance more than 85% of the home's value unless exceptions applied, such as renting from the family member for at least six months prior. While the general cash-out LTV is now 80%, the 85% rule still applies to certain related-party sales, requiring a 15% down payment unless an exception is met, notes FHA.com.
You can get a mortgage with a credit score as low as 620, 580 or even 500, depending on the type of loan. While you might be eligible for a mortgage with a low credit score, you'll pay a higher interest rate for the loan.
Reasons for an FHA Rejection
There are three popular reasons – bad credit, high debt-to-income ratio, and overall insufficient money to cover the down payment and closing costs of a home.
In general, the FHA loan approval process from preapproval to closing typically takes between 30 and 60 days. During this time, you'll get preapproved, go house hunting, and make an offer. Once your offer has been accepted, your lender will conduct the underwriting process.
A 520 credit score is considered poor and subprime by FICO and VantageScore, respectively. 1 This could affect your access to credit or financial products, as well as the terms and conditions you're granted if you do qualify.
The 2-2-2 credit rule is a guideline for building strong credit, suggesting you should have two active credit accounts (like cards or loans) for at least two years, with consistent on-time payments for those two years, often with a minimum credit limit of $2,000 per account, to demonstrate financial responsibility to lenders, especially for mortgages. It's a benchmark to show you can handle credit well over time, reducing lender risk and improving approval odds for major loans.
A poor credit score can feel overwhelming, but the good news is that it's not permanent. With a clear plan and consistent effort, you can rebuild your credit over time. Whether you've faced missed payments, high debt, or other financial challenges, taking proactive steps can get you back on track.
FHA Loan Requirements
To qualify for the lowest down payment option of 3.5%, your credit score must be 580 or above. You may be eligible if your credit score is between 500 and 579, but a down payment of 10% is required.
Even if you have a bad credit score you may still be able to borrow. Bad credit loans usually come with higher interest rates than other types of loans, but they can provide the money you need to cover important expenses or to consolidate debt. Repaying the loan on time can also help you to improve your credit score.
FHA loan disqualifications often stem from poor credit (below 500), high debt-to-income (DTI) ratios (often above 43%), unstable employment, insufficient funds for down payment/closing costs, or issues with the property itself, like hazards or severe disrepair, plus owing back federal debts or having delinquent student loans. Clearing federal debt, establishing stable income, and ensuring the home meets safety standards are key to overcoming these hurdles, notes FHA.com and The Home Loan Expert.
The 3-7-3 Rule in mortgages isn't a loan type but a federal timeline from the TILA-RESPA Integrated Disclosure (TRID) rule, ensuring borrower protection by mandating disclosures within 3 business days of application, a 7-business-day wait between the initial Loan Estimate and closing, and another 3-day wait if significant changes (like APR) occur, giving borrowers time to review costs before committing to a loan.
Yes, you can get a credit card with a 520 credit score, and there are both secured and unsecured options. One of the best credit cards for a 520 score is the Bank of America® Travel Rewards Secured Credit Card because it offers rewards and a $0 annual fee.
For most people, increasing a credit score by 100 points in a month isn't going to happen. But if you pay your bills on time, eliminate your consumer debt, don't run large balances on your cards and maintain a mix of both consumer and secured borrowing, an increase in your credit could happen within months.
Uninsurable property is a home that is not eligible for insurance through the Federal Housing Administration (FHA) because it needs extensive repairs. An uninsurable property is typically ineligible for a mortgage through the FHA.
FHA Appraisal Checklist
The FHA "12-month rule" generally requires borrowers to have a solid payment history, ideally with 12 consecutive months of on-time payments for all debts, especially housing, before applying for a loan, though some exceptions allow for limited late payments (like two 30-day lates in 24 months) or manual underwriting for extenuating circumstances. If a borrower has significant late payments (e.g., 3+ 30-day lates, or a 90-day late) within the past year, the loan may need to be downgraded or manually underwritten to assess if it was due to disregard for finances or extenuating situations like job loss or disability, requiring more documentation.