I hear a lot of lenders and Realtors say that FHA requires a 620 credit score to get approved for a loan. Well if you have been looking to buy a home in Johnson County Kansas over the last 2 years you will find out that it is mostly true. It is true that you have needed a 620 credit score but what wasn't true is that FHA required a 620. FHA loans don't actually have a requirement, it was the lenders enforcing higher standards due to a increase in foreclosures the last couple of years.
Well the lenders have found out that there has been a significant number of would be home buyers who fit every requirement to purchase (good job, good income, low debts) a home except the 620 credit score. They were finding a large group of buyers who's credit score were affected by Divorce, Old items on their credit report and misreported items that didn't belong to them.
To make the process more fair to people whos credit score has been affected by these circumstances some lenders are lowering their credit score requirement down to 500. Yes, 500 but there is a kicker. You will be required to make a larger down payment based on your individual situation.
Right now FHA requires a 3.5% down payment but certain loans under the new guidelines may require a down payment of up to 10%. While considerably more that the 3.5% at least it doesn't close the door on home ownership for deserving buyers.