For many homebuyers, particularly first-time buyers, securing a mortgage can seem overwhelming. However, FHA and VA loans provide more accessible options for those who may not qualify for traditional financing. These government-backed loans offer favorable terms, including low or no down payment requirements and more flexible credit score criteria.
One of the biggest benefits of FHA and VA loans is their lenient credit score requirements compared to conventional loans. FHA loans allow borrowers with credit scores as low as 500 to qualify (with a higher down payment), while VA loans don’t have a set minimum credit score requirement—though lenders may impose their own standards.
In this guide, we’ll break down the credit score requirements for FHA and VA loans, how your credit score affects your mortgage terms, and how you can prepare to secure the best loan possible.
FHA vs. VA Loans: Credit Score Requirements at a Glance

Both FHA and VA loans offer advantages, especially for borrowers with lower credit scores. However, understanding how these loan programs work and what lenders expect can help you navigate the mortgage process more effectively.
What Is an FHA Loan?
An FHA loan is a mortgage insured by the Federal Housing Administration (FHA) to help individuals with less-than-perfect credit achieve homeownership. Because FHA loans are backed by the government, lenders face less risk, making it easier for borrowers with lower credit scores to qualify.
FHA Loan Requirements
To secure an FHA loan, borrowers must meet several key requirements:
- Minimum Credit Score: 580+ to qualify for a 3.5% down payment; 500-579 requires a 10% down payment.
- Debt-to-Income (DTI) Ratio: Lenders prefer a DTI below 41%, but FHA guidelines allow up to 57% with compensating factors.
- Primary Residence Requirement: FHA loans are only for primary residences, though multi-unit properties may qualify if the borrower occupies one unit.
- FHA Appraisal: The home must meet minimum safety and quality standards before financing is approved.
- Mortgage Insurance: Borrowers pay an upfront mortgage insurance premium (1.75% of the loan amount) and an annual premium (0.45%-1.05% of the loan amount).
Despite the flexible credit score requirements, some lenders may impose stricter qualifications. Shopping around for the right lender can help you secure better loan terms.
What Is a VA Loan?
A VA loan is a mortgage backed by the U.S. Department of Veterans Affairs (VA) designed for eligible military service members, veterans, and surviving spouses. VA loans provide exceptional benefits, including no down payment requirements and no private mortgage insurance (PMI).
VA Loan Requirements
To qualify for a VA loan, borrowers must meet the following conditions:
- Certificate of Eligibility (COE): Proof of military service is required to apply.
- No Minimum Credit Score: The VA does not set a credit score requirement, but many lenders require a score of at least 620.
- No Down Payment Required: One of the biggest advantages of a VA loan.
- Funding Fee: Most VA loans require a funding fee ranging from 1.25% to 3.30% of the loan amount.
- DTI Ratio: While no strict limit exists, borrowers with a DTI over 41% may need compensating factors such as a higher income or significant savings.
- VA Appraisal: The home must pass a VA appraisal, which evaluates its safety, structure, and overall condition.
Because VA loans do not require mortgage insurance, they offer lower overall borrowing costs compared to FHA and conventional loans.
How Credit Scores Affect Mortgage Interest Rates
Your credit score doesn’t just impact your loan approval—it also influences the interest rate you receive. Borrowers with higher credit scores typically secure better loan terms, while those with lower scores may face higher interest rates.
Mortgage Interest Rate Breakdown by Credit Score
Using data from national lenders, here’s how credit scores can impact mortgage rates:As you can see, a lower credit score could cost you thousands in additional interest payments over the life of a loan.

For example, a borrower with a 620 credit score might pay nearly $79,000 more in interest over 30 years than someone with a 760+ credit score. This highlights the importance of improving your credit score before applying for a mortgage.
Improving Your Credit Score for a Mortgage
If your credit score is lower than you'd like, taking steps to improve it before applying for a mortgage can help you secure better loan terms. Here are some actionable tips:
- Check Your Credit Report: Request a free credit report from AnnualCreditReport.com and review it for errors.
- Pay Bills on Time: Your payment history makes up 35% of your FICO score, so consistent on-time payments are crucial.
- Reduce Credit Utilization: Keep your credit card balances below 30% of your credit limits.
- Avoid Opening New Credit Accounts: Too many recent credit inquiries can temporarily lower your score.
- Consider a Credit-Builder Loan: Tools like Ava Finance’s credit-building products can help improve your score by reporting on-time payments to major credit bureaus.
Bottom Line
Your credit score plays a significant role in your ability to qualify for a mortgage and the interest rate you receive. FHA and VA loans offer more lenient credit requirements than conventional loans, making homeownership more accessible for borrowers with lower scores.
While FHA loans allow credit scores as low as 500 (with a higher down payment), and VA loans have no official minimum, lenders often impose stricter guidelines. Regardless of the loan type you choose, improving your credit score before applying can help you save thousands of dollars in interest over time.
A great way to start building or improving your credit is through Ava Finance. Ava Finance offers credit-building tools designed to help you establish positive credit history, making it easier to qualify for a mortgage with better rates in the future. Whether you're planning to buy a home now or in the future, strengthening your credit is a smart financial move.