I Got Denied for Conventional at 652 Credit - FHA Approved Me in 6 Days with Same Income

I got my first mortgage denial letter on a Tuesday afternoon in June 2024. After three weeks of document submission, income verification, and waiting for underwriting review, the conventional lender denied my application for a $295,000 purchase loan citing “insufficient credit history and credit score below minimum threshold for program guidelines.”

I had 652 credit, $32,000 saved for down payment (10% down plus closing costs), stable $72,000 annual income, and debt-to-income ratio under 35%. On paper, I thought I was a strong borrower. The denial was crushing.

Six days later, a different lender approved me for the same purchase using an FHA loan. Here’s what I learned about the dramatic difference between conventional and FHA underwriting standards for borrowers with mid-600s credit scores.

Why Conventional Denied Me at 652 Credit

My three bureau credit scores in June 2024:

• Experian: 661
• Equifax: 652
• TransUnion: 647

My middle score was 652. I knew conventional loans technically allowed 620+ credit, so I thought I would qualify easily.

The underwriter’s denial letter listed three reasons:

“Credit score below lender overlay minimum for stated down payment and DTI ratio”

This confused me because I had 10% down saved—way more than the 3% minimum for conventional. My loan officer explained that while Fannie Mae guidelines allow 620+ credit, most conventional lenders impose “overlays” (additional restrictions) that require higher credit for certain risk combinations.

At my lender, 10% down with 35% DTI required 660+ credit minimum. If I had 680+ credit, 10% down with 35% DTI would be fine. If I had 20% down, even 640 credit would probably be acceptable. But my specific combination—652 credit + 10% down + 35% DTI—fell outside their risk tolerance.

“Insufficient credit depth and limited payment history”

My credit report showed:

• 3 years 8 months of credit history
• 2 credit cards (opened 3.5 years ago)
• 1 auto loan (opened 2 years ago, current balance $8,400)
• 42 months of on-time payments (no lates, no collections)

The underwriter wanted 5+ years of established credit history or 4+ active trade lines. I was just short on both metrics—which wouldn’t have been disqualifying at higher credit scores, but became issues at 652 credit when combined with other factors.

“Recent derogatory credit event impacting risk profile”

This one shocked me: a 30-day late payment from March 2022 (over 2 years ago) on my car loan. I had completely forgotten about it—I was traveling for work, missed the payment by 5 days, and paid it as soon as I returned home.

That single late payment dropped my score about 40-60 points when it happened, and even though it was now 27 months old, it was still impacting my qualification. Conventional underwriting gives significant weight to payment history within the past 2-3 years, especially for borderline credit scores.

The loan officer said if I could improve my credit to 680+ or wait until the late payment aged past 36 months (March 2025), I would likely be approved for conventional. Neither option helped me buy the home I had already gone under contract to purchase with a 45-day closing deadline.

How FHA Approved Me in 6 Days

My real estate agent referred me to a different lender who specialized in FHA loans after my conventional denial. I submitted the same documentation I had already provided to the conventional lender, expecting another 3-week underwriting process.

The FHA lender came back with approval in 6 days.

Here’s what FHA did differently:

FHA Credit Requirement: 580+ for 3.5% Down, 620+ for Less Than 10% Down

At 652 credit, I was 72 points above the minimum 580 threshold for FHA 3.5% down. The FHA lender explained that while I only needed 3.5% down with my credit score, I could choose to put down 10% anyway to reduce my loan amount and monthly payment if I wanted.

I decided to stick with 10% down ($29,500 on $295,000 purchase) since I had already saved that amount. This gave me:

• Smaller loan amount ($265,500 instead of $284,525)
• Lower monthly payment
• Faster equity building
• Better positioning for future refinance to conventional

FHA Focuses on Recent Payment History (12 Months)

While conventional underwriting scrutinized my entire 3+ year history including the 27-month-old late payment, FHA focused primarily on the most recent 12-24 months of payment history.

In the past 12 months, I had:

• 0 late payments
• 0 collections
• 0 derogatory marks
• 100% on-time payment history across all accounts

The FHA underwriter noted the March 2022 late payment but gave it minimal weight since it was outside the 24-month window and I had demonstrated consistent on-time payments since then. The underwriting guidelines specifically state that isolated late payments older than 24 months with clean recent history don’t automatically disqualify borrowers.

FHA Accepts “Thin” Credit Files More Easily

My limited credit depth (only 3.6 years of history and 3 trade lines) was flagged by conventional underwriting as insufficient. FHA guidelines are more flexible for borrowers with shorter credit histories as long as:

• All accounts show on-time payments
• No recent collections or charge-offs
• Credit score meets minimum threshold

The FHA underwriter actually commented positively on my credit file: “Borrower demonstrates responsible credit management with limited trade lines—all accounts current with zero payment defaults in past 24 months.”

Where conventional saw “insufficient credit depth,” FHA saw “responsible borrower with clean recent history.”

Manual Underwriting Option for Borderline Cases

The FHA lender explained that even if automated underwriting had issues with my credit profile, FHA allows manual underwriting where a human underwriter can approve loans based on compensating factors like:

• Stable employment (I had 4.5 years with same employer)
• Strong income ($72,000 annual with recent raises)
• Significant reserves (I would have $2,500 remaining after closing)
• Low debt-to-income ratio (35% including mortgage)
• Minimal credit risk factors (no recent derogatory events)

My loan actually received automated approval through FHA’s system, but my loan officer said manual underwriting would have approved me even if automated underwriting flagged my credit score or limited history—that’s how much more flexible FHA is compared to conventional for borrowers with mid-600s credit.

The Trade-Off: Mortgage Insurance

FHA’s flexibility came with one significant cost: mortgage insurance structure.

FHA Mortgage Insurance:

• Upfront: 1.75% of loan amount ($4,646 added to my loan balance)
• Monthly: 0.80% annually ($2,124 per year = $177/month)
• Duration: Life of loan (permanent unless I refinance)

Conventional PMI (if I had been approved):

• Upfront: $0
• Monthly: ~0.65% annually ($1,724 per year = $144/month at my credit score)
• Duration: Automatic removal at 78% LTV (approximately 7-8 years)

Over the first 5 years, FHA mortgage insurance would cost me $10,620 ($177/month × 60 months) plus the $4,646 upfront premium that gets added to my principal balance.

If I had qualified for conventional, PMI would have cost $8,640 ($144/month × 60 months) with no upfront premium.

The difference: $6,626 more over 5 years for FHA compared to conventional ($10,620 + $4,646 FHA vs. $8,640 conventional).

But here’s the key: conventional wasn’t available to me at 652 credit with my profile. FHA’s higher mortgage insurance cost was the price I paid for being able to buy the home at all rather than waiting 6-12 months to improve my credit or find a different lender willing to approve conventional at my risk level.

My Plan to Minimize FHA Mortgage Insurance Cost

I accepted that FHA mortgage insurance would be permanent unless I took action. My strategy:

Step 1: Improve Credit to 720+ Over 18-24 Months

I’m working on credit improvement through:

• Keeping all accounts current (building strong 24-month payment history)
• Paying down credit card balances below 10% utilization (currently at 8%)
• Letting the March 2022 late payment age past 36 months (March 2025)
• Becoming authorized user on my parents’ 15-year-old credit card (added in July 2024)

Target: 720+ credit by January 2026 (18 months from purchase)

Step 2: Build 20% Equity Through Payments and Appreciation

I’m tracking my loan-to-value ratio to reach 80% LTV for refinance:

• Original purchase: $295,000
• Down payment: $29,500 (10%)
• Starting LTV: 90%

To refinance without PMI, I need to reach 80% LTV or better:

• 80% of $295,000 = $236,000 loan balance needed
• Current loan balance after 8 months: $262,800
• Need to pay down: $26,800 more

If my home appreciates 3% annually ($8,850/year), I’ll have about $17,700 in appreciation by January 2026. Combined with normal principal paydown of $8,900 over 18 months, I should be at approximately 82-83% LTV—close enough for a conventional refinance with my improved 720+ credit.

Step 3: Refinance to Conventional to Remove Mortgage Insurance

Once I hit 720+ credit and 82% LTV, I’ll refinance from FHA to conventional. At 720+ credit with 18% equity, I should qualify for conventional with no PMI and much better interest rate.

Estimated savings after refinance:

• Current FHA payment: $1,791 P&I + $177 MI = $1,968 total
• Future conventional payment: ~$1,650 P&I + $0 MI = $1,650 total
• Monthly savings: $318
• Annual savings: $3,816

Total FHA mortgage insurance paid before refinance: ~$3,186 (18 months × $177)

This is way better than the $10,620+ I would pay if I kept FHA for the full 5 years.

When FHA Makes Sense vs. When to Wait for Conventional

Based on my experience, FHA makes sense if:

Your credit is 620-679. This is FHA’s sweet spot. Below 620, you’ll need manual underwriting or significant compensating factors. Above 680, conventional becomes more competitive and you should compare both options carefully before choosing FHA.

You have recent credit issues resolved more than 12-24 months ago. FHA is more forgiving of older late payments, collections, or derogatory marks as long as your recent payment history (12-24 months) is clean. Conventional scrutinizes 3-5 year history more heavily.

You have limited credit history (under 5 years). FHA accepts “thin files” with fewer trade lines and shorter histories. Conventional prefers 5+ years of established credit depth.

You need to close quickly and don’t have time for credit improvement. FHA approval is faster and more certain for borderline credit profiles. If you’re under contract with tight closing deadline, FHA may be your only realistic option.

You plan to refinance within 2-4 years. FHA’s permanent mortgage insurance is less problematic if you’re treating FHA as temporary stepping stone to conventional. The 18-month mortgage insurance cost before refinancing is much smaller than 10+ year permanent MI cost.

You should wait and improve credit for conventional if:

You’re 10-20 points below 680 and can improve in 3-6 months. If you’re at 662 credit and can realistically hit 680+ through credit card paydown, error disputes, or authorized user strategy within a few months, the conventional approval and lower PMI costs make waiting worthwhile.

You’re not under contract yet. If you’re still shopping for homes and have flexibility on timing, using 3-6 months to improve credit before applying can save thousands in better interest rates and lower mortgage insurance on conventional loans.

Your market is stable or declining. If home prices are flat or falling, waiting to improve credit doesn’t cost you anything in appreciation. If prices are rising $2,000+/month, the cost of waiting may exceed the savings from better loan terms.

You have other credit issues beyond just score. If you have recent collections, charge-offs, or late payments within the past 12 months, neither FHA nor conventional will approve you easily. Better to resolve those issues first, let them age, then apply when your profile is cleaner.

Resources That Helped Me After Denial

After my conventional denial, I used several resources to understand my options:

Browse Lenders connected me with the FHA specialist who approved my loan in 6 days. Not all lenders understand FHA underwriting nuances—many lenders prefer conventional because the underwriting is more standardized. Finding a lender who specializes in FHA made the difference between homeownership and waiting another year.

Middle Credit Score helped me understand why 652 credit was above FHA minimums but below conventional thresholds with my specific profile. The education around credit tiers and program-specific requirements explained why I was denied—and why FHA was my best path forward.

If you’re in the 620-679 credit range, I strongly recommend applying for FHA first before attempting conventional. The approval odds are much higher, the process is faster, and you can always refinance to conventional later once your credit improves.

My denial from conventional at 652 credit was disappointing, but FHA approval within 6 days taught me that credit score alone doesn’t determine qualification—program guidelines, lender overlays, and underwriting flexibility matter just as much.

For borrowers with mid-600s credit who need to buy now rather than wait, FHA provides a realistic path to homeownership that conventional lenders increasingly restrict through risk-based overlays. The higher mortgage insurance is a cost worth paying for the ability to buy your home today and build equity while improving your credit for future refinance opportunities.