580 Credit Score Home Loans: What You Need to Know

Owning a home is one of life’s biggest goals—but if you have a lower credit score, it can feel out of reach. The good news? That’s no longer the case. With programs like FHA, VA, and non-qualified mortgages, even borrowers with credit scores around 580 can still become homeowners in California and beyond. Let’s break down what a 580 credit score means, your home loan options, and how to improve your chances of approval.

What is a credit score?

Your credit score is a snapshot of your financial habits—how you handle debt, make payments, and manage credit overall. Scores typically range from 300 to 850, with higher numbers reflecting stronger creditworthiness.

What Affects Your FICO Score

Here’s what goes into calculating your credit score:

• Payment History (35%) – Late or missed payments can seriously lower your score
• Public Records – Bankruptcies, tax liens, or civil judgments hurt your credit profile.
• Length of Credit History – A shorter credit history can work against you. In short if you've only just begun your credit journey, you may have a low credit score.
• Credit Applications – If you apply for a loan or credit card, this is considered a hard inquiry. When a lender attempts to learn your credit score and possibly your credit report, this triggers a hard inquiry, which will negatively impact your credit score. Thankfully, the effect is only short-term. Periodically checking your own
• Credit Utilization Ratio – This is the amount of available credit you are using. You figure this out by totaling the balances from your credit cards, then divide that number by your total credit limit. For instance, if you owe $4,000 on your credit cards and your total credit limit is $10,000, you are using 40% of your credit. The golden rule is to keep your usage under 30% of your available credit.
• Credit Mix and Total Debt – A healthy balance of revolving credit (credit cards) and installment loans (auto or student loans) helps your score.

Before applying for a home loan, check your credit report through free tools like AnnualCreditReport.com. If you spot inaccuracies or outdated information, dispute them immediately—fixing even small errors can raise your score and improve your loan options.‍

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Why it matters

Credit scores influence everything from your interest rate to down payment requirements. While you don’t need a perfect 850 score, higher scores unlock better terms. Borrowers with a 580 credit score may still qualify for financing—especially through FHA, VA, or non-QM loans designed for flexibility.For instance, an FHA loan with a 580 credit score allows for just 3.5% down, compared to 10–20% required by most conventional lenders. Over time, these savings can make homeownership far more achievable.

FHA Loans: A Smart Option for 580 Credit Scores

To qualify for an FHA home loan, potential homeowners must have a minimum FICO score of 580. This score also entitles borrowers to the low down payment benefit of only 3.5%. If your score is below 580, you aren't out of luck. You may still qualify for an FHA loan but have to pay a slightly higher down payment of 10%.

The Federal Housing Administration (FHA) offers one of the most popular low-credit home loan programs. To qualify, you’ll generally need:

• A minimum credit score of 580 (for 3.5% down)
  
  
• A steady income and proof of employment
  
  
• A manageable debt-to-income (DTI) ratio

If your score is below 580, you may still qualify with a 10% down payment.

We help our clients to get low rates and the best mortgage deals possible. Are you looking for a mortgage broker? Call Mares Mortgage today!

Benefits of an FHA loan

If you’re a first-time homebuyer or working to rebuild your credit, FHA loans can open the door to homeownership without the strict requirements of conventional loans. These government-backed loans are designed to make buying a home more accessible and affordable for people with moderate incomes or less-than-perfect credit. They offer flexible terms and protections that help borrowers start building long-term financial stability. The FHA's home loans are insured by them so that lenders can be more relaxed in their requirements.

FHA home loans have many benefits for borrowers, including the following:

• More competitive interest rates: These are intended to help borrowers afford their mortgage payments and prevent foreclosures.
• Easier to qualify: These loans are made available to people who can't meet traditional loan requirements.
• Bankruptcies and foreclosures don't disqualify you: As long as you're able to meet other FHA requirements, you can still qualify.
• Lower mortgage insurance premiums, closing costs, and other fees.
• Brief credit history is acceptable: You may qualify through another form.

FHA loans make it possible for people to own homes without being burdened by them. 

FHA loans are especially helpful for first-time homebuyers or those rebuilding credit. Learn more in our related post: Are Condos a Good Investment?

VA Loans: The Best Choice for Veterans and Service Members

Home loans provided by the U.S. Department of Veteran Affairs are for service members, military-affiliated people, and eligible spouses. VA loans don't require any down payment or mortgage insurance, and they often give the lowest interest rates on the market. The Department of Veterans Affairs (VA) guarantees loans for eligible active-duty service members, veterans, and certain surviving spouses.

VA loans come with some of the best mortgage benefits available:

• No down payment required
• No mortgage insurance
• Competitive interest rates
• No strict minimum credit score (many lenders accept 580 or higher)

Because VA loans don’t have risk-based pricing, borrowers with a 580 credit score may still receive the same interest rate as those with higher scores—saving thousands over the life of the loan.

To confirm eligibility, visit the official VA Home Loan page or ask your Mares Mortgage broker to help you obtain your Certificate of Eligibility (COE).

Related: Questions to ask a Mortgage Lender

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Non-Qualified Mortgage

The final kind of mortgage available to those with low credit scores is the non-qualified mortgage. The qualified mortgage rule, also called the QM Rule, was established in 2014. The federal government set out the requirements for the loans, which were designed to protect home-buyers from high-risk mortgage products.

 If you’re self-employed, recently changed jobs, or have non-traditional income sources, a non-qualified mortgage (non-QM) might be your best fit.

These loans don’t follow standard federal guidelines but still offer safe and responsible lending terms.

Why Choose a Non-QM Loan

• Available for credit scores as low as 500
• Flexible income documentation (bank statements instead of W-2s)
• Great for entrepreneurs, freelancers, or investors
• Competitive rates for borrowers outside traditional qualification boxes

Like the FHA loan, non-QM loans are more readily available to people with a score of at least 580. Non-QM loans are growing in popularity across California, giving buyers more freedom when traditional options fall short. 

How to Improve Your Approval Odds

Even with a 580 credit score, a few simple steps can help strengthen your application:

• Pay down credit card balances below 30% utilization.
• Avoid applying for new credit 3–6 months before applying for a loan.
• Gather consistent proof of income.
• Consider a co-borrower with stronger credit to help you qualify.

You can also check out our guide: Refinancing With Bad Credit for strategies to rebuild your score before applying.

Final thought

A 580 credit score doesn’t have to stand between you and your dream home. With the right mortgage program—whether FHA, VA, or non-QM—you can secure financing that fits your goals.

At Mares Mortgage, we specialize in helping borrowers with all types of credit backgrounds find affordable, realistic loan options.

Do you still have questions? Despite your credit score, we can help you find a suitable mortgage and reach your financial goals. Contact Mares Mortgage today!