500? 580? 660? Many people with credit problems would like to know exactly how much do they need to improve their bad credit before they can seriously think about getting a mortgage. Aside from bad credit mortgage lenders, the most forgiving lender on the market is probably FHA. But confusion about FHA's minimum credit score requirements is abundant. Articles about credit problems quote FHA minimum scores at 500, 580, 600, 620, 640, 660, and even 680. And the FHA Web site doesn't offer much help either.

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So what is the real minimum credit score for an FHA mortgage? If you read HUD's recent press releases, you'd think it was 500 to get an FHA mortgage, and 580 to get one with only 3.5% down. But just try to get an actual home loan from an actual mortgage lender with those scores. Unless you make a much bigger than required down payment, you aren't likely to get an FHA loan with bad credit scores like those.

Even though FHA says it's okay for you to have a 580 credit score, FHA-approved lenders don't often agree. You'll see when you check around that FHA lenders may require minimum scores ranging from 600 to 680. Even though FHA's own guidelines are more flexible. This is called a lender overlay.

Why would a lender impose tougher requirements than FHA does? Doesn't FHA insurance protect the lender against losses? And don't these guys want to write as many loans as they possibly can and make money hand over fist? Yes, FHA-approved lenders want to make as much money as they can funding as many loans as they can. And yes, they are protected by mortgage insurance from loss if you blow off your loan. But they could also lose their FHA approval if too many border-line borrowers blow off too many mortgages. Even if those loans were underwritten in EXACT conformance with FHA guidelines. With 39% of all mortgages these days being FHA loans, no lender wants to chance losing its approval and with it, over a third of its business. That's why lenders add requirements to minimize the chance of mortgages going sideways and maximize the odds of holding on to their approval. That's part of what's caused the average FICO score of FHA borrowers to skyrocket from 621 in 2008 to 692 by the end of 2009.

What can you do? Because lender requirements for FHA loans are all over the place, your best bet is to contact a lot of lenders. See what they consider bad credit and what scores are acceptable to them. Filling out the form on this site can let you get competitive quotes from several lenders, and then you can ask them all what their minimum scores are.