Can You Get a Conventional Loan at the Minimum Score or Is FHA Better?

The Quick Read: Usually yes on paper, but it may cost more than FHA. Automated conventional approvals no longer use a published score floor, yet a low score still raises the price and the insurance bill. FHA publishes its floor and prices its insurance without regard to your score. Which is cheaper depends on your down payment and how long you will keep the loan.

What “Minimum Score” Actually Means

There is no single minimum score. The number depends on the program, on whether a computer or a person reviews the file, and on the lender behind the loan.

FHA is the simple one. It publishes a floor. The score the lender uses is called the decision score. With one borrower, it is the middle of up to three credit scores. With two or more borrowers, the lender looks at each person’s middle score and uses the lowest. A co-borrower with a weak file can drag the decision score down.

Across the wholesale programs Lendmire places FHA files with, the practical floor is 580. At that score, FHA allows financing up to 96.5% of the price or value, with a 3.5% minimum investment from you. HUD’s own rules reach lower, down to the 500-579 range with a 10% minimum investment. But those programs sit below what the network reaches. If you want the full picture of how the program works, start with Lendmire’s FHA loan programs page.

Conventional is murkier. Most conventional files run through an automated approval system, and that system no longer applies a hard score cutoff. It weighs your whole file instead: credit history, income, debts, savings, the property and the loan purpose. Files reviewed by hand still carry a minimum score. Many lenders also add their own stricter floors, called overlays. An overlay is a lender rule that is tougher than the program’s published rule.

Overlays hit FHA too. A lender can ask for more than the published FHA floor. That is why two borrowers with the same score can get different answers from different lenders.

Here’s the catch. “No minimum” does not mean “easy approval.” It means the score alone does not decide the file.

What Happens When You Get a Conventional Loan at the Minimum Score

You can be approved and still pay a lot more. Conventional loans carry two cost layers that react to a low score, and FHA does not price its insurance that way.

Layer one is pricing adjustments. Conventional loan buyers charge risk-based adjustments tied to your credit score, your loan-to-value ratio (the loan as a share of the home’s value), and the property’s use. These adjustments stack. A low score plus a small down payment hits twice. You usually feel them as higher pricing or higher costs at closing. FHA loans sit outside this adjustment grid.

Layer two is private mortgage insurance (PMI). When your down payment is small, conventional lenders typically require it. PMI protects the lender, not you. The size of the premium moves with your score and your leverage, so a borrower at the bottom of the range often sees the steepest cost.

The good news is that PMI can end. Under federal law, you can ask to cancel borrower-paid PMI once your balance falls to a set share of the original value. It then ends automatically at a lower share if you are current on payments. Lender-paid PMI is different. You cannot cancel it on your own, and it usually comes with higher pricing built into the loan.

So a conventional loan at a low score can be approved and expensive. Some borrowers accept that because the insurance eventually goes away. Others find the monthly cost is the problem. Run both before you pick.

How FHA Treats the Same Borrower

FHA is built for borrowers with thinner credit and smaller down payments. The tradeoff is its mortgage insurance, which has two parts.

• Upfront premium: 1.75% of the base loan amount, which most borrowers finance into the loan. HUD’s Mortgagee Letter 2023-05 sets this charge for nearly all FHA mortgages. The exceptions are narrow and cover things like certain streamline refinances of older FHA loans.
• Annual premium: between 0.15% and 0.75% of the balance, collected monthly. It depends on the loan term, the loan amount and the LTV.

How long the annual premium lasts depends on your starting LTV. On a thirty-year loan above 90% LTV, it lasts the full term. At or below 90%, it ends after eleven years. With a 3.5% down payment, you are above that line. Plan on the premium sticking around. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.

The premium is a program fact, not a price quote. The real numbers for your file depend on a full review of your loan details.

Other FHA features matter at a low score too:

• The home must be your owner-occupied principal residence, one to four units.
• A non-occupant co-borrower is allowed.
• Seller or other interested-party contributions can run up to 6% of the price.
• Debt ratios start at 31/43 (housing costs over income, then total debts over income). Documented compensating factors can stretch that to 40/50 at the top tier. The automated finding governs most files.
• County loan limits apply, and they change every year.

If you meant a second home or a rental, FHA is not the tool. Occupancy decides how much leverage you get.

Where the “No Minimum” Rule Comes From

The change on the conventional side is real. Fannie Mae’s Selling Guide Announcement SEL-2025-09 says minimum credit score requirements no longer apply to loans submitted to its automated approval system, Desktop Underwriter. Lenders still have to pull scores for every borrower.

Fannie Mae also changed what triggers a nontraditional-credit review and the homebuyer education requirement. Those used to depend on the score. Now the system flags them with a message.

That does not mean standards got looser. The system still reads the whole file. And lenders and mortgage insurers can keep their own minimums, so a borrower can clear Fannie Mae’s system and still get turned away by the lender or the insurer.

On the FHA side, the HUD FHA Resource Center lays out the score rules. A decision score below 500 is not eligible. A score of 500-579 is capped at 90% LTV. A score of 580 or higher qualifies for maximum financing. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

HUD adds two edge cases worth knowing:

• If only a non-occupying co-borrower has a credit score, the lender must downgrade the file and underwrite it by hand.
• Borrowers with thin or nontraditional credit can still get maximum financing, but the file is manually underwritten.

FHA vs. Conventional at a Low Score, Side by Side

Read the table as a map, not a verdict. Neither column wins every row.

A Borrower Right at the Line

Picture a buyer with a decision score at 580 and 3.5% to put down on a primary residence. The numbers below are modeled assumptions, not quotes.

On FHA: The buyer can finance up to 96.5%. The upfront premium is 1.75% of the loan. The annual premium falls somewhere between 0.15% and 0.75% depending on the loan term, loan amount and LTV. At 96.5% LTV on a thirty-year loan, that premium lasts the full term. The score does not change that premium. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.

On conventional: The same buyer, with the same small down payment, may be approved by the automated system. But the pricing adjustments for a low score and high LTV stack. PMI is priced to the same weak profile. The loan can carry a higher monthly cost and higher closing costs, even though the PMI can eventually be cancelled.

The crossover point is where conventional starts to win. It tends to show up as the score rises and the down payment grows. Each step cuts both the pricing adjustments and the PMI. A borrower with a strong score and 5% down often finds conventional cheaper. A borrower at the line with 3.5% down often finds FHA cheaper, at least in the early years.

The holding period matters just as much. If you plan to sell in a few years, FHA’s long-lasting premium costs you less than it looks. If you expect to stay a decade or more, the premium that never ends becomes the larger cost, and a later refinance becomes part of the plan.

One practitioner note. When a file sits at the edge, the best answer usually comes from pricing both loans side by side with the same assumptions. Lendmire’s team sees borrowers who assume FHA is cheaper and borrowers who assume conventional is cheaper. Neither assumption holds across every file. The Loan Estimate for each option settles it.

Which One Fits You?

FHA tends to fit if:

• Your score is near the bottom of what lenders will take.
• You have 3.5% down, and not much more.
• Your debts are heavy and you need the 40/50 flexibility with documented factors.
• You have a past credit event and are past HUD’s waiting periods (two years from a chapter 7 discharge, three years from a foreclosure).
• You plan to refinance later. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.

Conventional tends to fit if:

• Your score is solid enough that pricing adjustments stay modest.
• You can put down more than the minimum.
• You want mortgage insurance you can cancel.
• You are buying a second home, or your loan amount sits above what FHA allows in your county.

A quick decision flow:

1. Is the home your primary residence? If no, FHA is out.

2. Is your down payment at or near 3.5%? If yes, price both.

3. Is your score near the bottom? If yes, expect conventional to cost more.

4. Will you keep the loan more than a few years? If yes, weigh the long-lasting FHA premium against the PMI that can be cancelled.

5. Does your file have gaps, like thin credit? If yes, FHA’s manual underwriting path may fit better.

What Strengthens a Borderline File

A weak score is one input. These can offset it:

• A bigger down payment. It lowers the LTV, which softens pricing on conventional and may remove the highest premium tier on FHA.
• Paying down debts. Lower monthly debts improve your ratios and give the automated review less to worry about.
• Cash left over after closing. Savings after closing help on both programs.
• A steady work and income history. Documented, stable income counts for a lot.
• A co-borrower. A non-occupant co-borrower is allowed on FHA and can add income. But remember the lowest-median-score rule. A co-borrower with a lower score can hurt you instead.
• Explaining credit problems in writing. One late payment with a clear reason reads very differently from a pattern.

Pulling your own credit reports before you apply helps too. Errors happen, and a quick correction can move the score before the lender sees it.

Buy Now or Wait?

This is a genuine judgment call. Waiting a few months to raise your score can cut the cost of a conventional loan. But waiting has its own cost: you keep paying rent, and prices and conditions keep moving.

The honest framework: price both loans today. Then ask what a higher score would change. If a modest score gain would drop you into a cheaper pricing tier, a short wait may pay off. If your score is stuck or you need the home now, FHA is a workable way in.

FHA is also not a life sentence. A later refinance can move you out. The FHA Streamline refinances an existing FHA loan with no appraisal and a limited credit review, though it needs a net tangible benefit, and the premium continues. An FHA rate-and-term refinance with an appraisal reaches 97.75% on a principal residence you have occupied for the previous twelve months. An FHA cash-out reaches 80% LTV on a home you have owned and occupied for 12 months. To go from FHA to conventional, read Lendmire’s piece Does an FHA-to-Conventional Cash-Out Refinance Need Better Credit?. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.

Common Mistakes

• Assuming FHA is cheaper for low scores. Often true. Not a rule. Compare the full cost at your expected holding period.
• Comparing only the monthly payment. Look at the upfront costs and the insurance exit too.
• Ignoring overlays. The published floor is the starting line. The lender’s own floor is the real one.
• Believing “no minimum” means approval. It means no hard cutoff, not no review.
• Forgetting which score counts. With more than one borrower, the lowest middle score drives the FHA decision.
• Skipping the Loan Estimate comparison. The Loan Estimate is where the real costs show up.

Key Terms Defined

Decision score: The credit score FHA uses to judge your file. It is the middle score of each borrower, and with several borrowers the lowest of those.

Overlay: A lender’s own rule that is stricter than the program’s published rule.

Pricing adjustment: A risk-based charge on conventional loans, tied to score, LTV and other features. It shows up in your loan’s pricing or costs.

PMI (private mortgage insurance): Insurance on a conventional loan with a small down payment. It protects the lender, and borrower-paid PMI can be cancelled.

MIP (mortgage insurance premium): FHA’s insurance, made up of an upfront premium and a monthly annual premium. HUD sets the schedule.

LTV (loan-to-value): The loan balance as a share of the home’s value or price.

Manual underwriting: A person reviews your file instead of an automated system, usually when credit is thin or nontraditional.

Your Next Step

If you are buying a home and want to see whether an FHA loan fits your file, Lendmire can help you compare the options and what each one asks of the file. Reach the team at 828-256-2183. Everything here is subject to lender guidelines and a full file review, and none of it is a commitment to lend.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. HUD Mortgagee Letter 2023-05

2. Fannie Mae Selling Guide Announcement SEL-2025-09

3. HUD FHA Resource Center – minimum credit score Q&A