3.5% Down vs 10% Down FHA: My 597 Credit Score Cost Me an Extra $13,000 (But I'd Do It Again)

When I applied for an FHA loan in February 2024, I thought I’d be putting down 3.5% (the famous low-down-payment FHA benefit).

My credit score: 597 (middle score from 591, 597, 605 across three bureaus).

What my loan officer told me: “Your credit score is below 620—FHA requires 10% down for credit scores between 580-619.”

My reaction: “Wait, what? I thought FHA only required 3.5% down?”

The reality: FHA’s down payment requirement depends on your credit score.

580-619 credit: 10% down payment required
620+ credit: 3.5% down payment allowed

My $200,000 home purchase:

• 10% down (597 credit): $20,000 down payment
• 3.5% down (620+ credit): $7,000 down payment
• Extra cost for my 597 credit score: $13,000 more upfront

My dilemma: Should I wait 3-6 months to improve my credit to 620+ (and save $13,000 on down payment), or buy now with 10% down and accept the higher upfront cost?

My decision: I bought immediately with 10% down at 597 credit.

Why I’d do it again: Because waiting 6 months to improve my credit would’ve cost me MORE than $13,000 when I factored in rent increases, home appreciation, and refinance opportunities.

Here’s my full analysis—what I paid with 10% down, what I would’ve saved with 3.5% down, and whether buying now or waiting for better credit saves more money.

My 597 Credit Score FHA Qualification

Why My Score Was 597

My credit challenges:

• Collections account: $850 medical bill from 2021 (I forgot to pay after insurance—it went to collections)
• High credit card utilization: $3,400 balance on $5,000 total limits = 68% utilization
• Short credit history: 3.5 years average account age
• Recent credit inquiries: Applied for two credit cards in 2023 (trying to increase limits—backfired)

What was helping my credit:

• No late payments in past 24 months (besides the medical collection from 2021)
• Car loan with 100% on-time payments (2 years old)
• Stable employment (4 years at same company)

My three credit scores:

• Experian: 605
• TransUnion: 597
• Equifax: 591

Middle score: 597 (this is what FHA uses—not highest, not average, but the middle of the three)

FHA Approval at 597 Credit Score

What I qualified for:

✅ FHA loan approved (FHA allows credit scores as low as 580)
❌ 3.5% down payment (requires 620+ credit)
✅ 10% down payment (required for 580-619 credit scores)

My loan details:

• Purchase price: $200,000
• Down payment (10%): $20,000
• Loan amount: $180,000
• Upfront mortgage insurance (1.75%): $3,150 (financed into loan)
• Total loan: $183,150
• Interest rate: 7.375% (higher due to 597 credit—borrowers with 680+ credit were getting 6.50%)
• Monthly P&I: $1,279
• Annual MI (0.85%): $130/month
• Property taxes: $220/month
• Homeowners insurance: $95/month
• Total monthly payment: $1,724

Cash needed at closing:

• Down payment: $20,000
• Closing costs: $4,800
• Total cash: $24,800

My savings: $18,000 (I’d saved aggressively for 2 years—$750/month)

Parent gift: $7,000 (FHA allows 100% gift funds for down payment + closing)

Out-of-pocket: $17,800 (my $18,000 savings - $200 left over for moving costs)

What I Would’ve Paid with 3.5% Down (If I’d Improved Credit to 620+)

The 6-Month Credit Improvement Timeline

To get from 597 to 620+ credit score, I’d need to:

Step 1: Settle the $850 medical collection (adds 15-25 points once removed)

Step 2: Pay credit cards from 68% to under 30% utilization (adds 20-30 points)

• Current balance: $3,400
• Goal balance: $1,500 (30% of $5,000 limit)
• Paydown needed: $1,900

Step 3: Wait for credit inquiries to age (reduces impact after 6 months—adds 5-10 points)

Step 4: Avoid new credit (prevents further drops)

Expected timeline: 4-6 months to reach 620-625 credit score

Estimated score after 6 months: 625 (597 + 15 collection + 25 utilization + 8 inquiries = 645, but allowing margin for slower-than-expected improvement)

What 3.5% Down Would’ve Cost

If I waited 6 months and bought with 620+ credit:

Home purchase price: $206,000 (3% appreciation over 6 months—my market was rising fast)

FHA loan details:

• Purchase price: $206,000 (vs. $200,000 if I bought immediately)
• Down payment (3.5%): $7,210
• Loan amount: $198,790
• Upfront MI (1.75%): $3,479 (financed)
• Total loan: $202,269
• Interest rate: 7.00% (0.375% better than my 7.375% at 597 credit)
• Monthly P&I: $1,346
• Annual MI (0.85%): $143/month
• Property taxes: $227/month (higher due to $206K price vs. $200K)
• Insurance: $98/month
• Total monthly payment: $1,814

Cash needed at closing:

• Down payment: $7,210 (vs. $20,000 at 10% down)
• Closing costs: $4,940
• Total cash: $12,150 (vs. $24,800 at 10% down)

Upfront savings vs. 10% down: $24,800 - $12,150 = $12,650 less cash needed

Monthly payment comparison:

• My actual payment (10% down, 597 credit): $1,724/month
• 3.5% down payment (620+ credit): $1,814/month
• Monthly difference: $90/month MORE for 3.5% down (because loan balance $19,000 higher despite lower rate)

The Hidden Costs of Waiting 6 Months

Cost #1: Extra Rent

My rent: $1,380/month

If I waited 6 months to improve credit:

• February-July rent: $1,380 × 6 = $8,280
• Plus: Rent increase in June (lease renewal): $1,480/month × 2 months = $2,960
• Total rent paid: $11,240

If I bought immediately:

• February rent only: $1,380 (moved in March 1)
• Total rent saved by buying immediately: $11,240 - $1,380 = $9,860

Cost #2: Home Price Appreciation

My market: Jacksonville, FL (home prices rising 6-8% annually in 2024)

Monthly appreciation: 0.5% per month (conservative estimate)

Home price if I bought in March 2024: $200,000

Home price if I waited until September 2024:

• March: $200,000
• April: $201,000 (+0.5%)
• May: $202,000
• June: $203,000
• July: $204,000
• August: $205,000
• September: $206,000
• Total appreciation: $6,000 (3% over 6 months)

My down payment on $206,000 home (3.5%): $7,210

vs. My down payment on $200,000 home (10%): $20,000

Net difference: $7,210 - $20,000 = -$12,790 (3.5% down costs $12,790 less)

But: I’m financing $6,000 more because home price increased—costs me $40/month over 30 years = $14,400 total

Cost #3: Interest Rate Environment

Rates in March 2024: 7.375% (my rate at 597 credit)

Rates in September 2024: 7.625% (rates rose 0.25% over 6 months—I couldn’t have known this, but it happened)

If I’d waited for 620+ credit but rates increased:

• Best rate at 620+ credit in September: 7.25% (vs. 7.00% I was assuming in March)
• My rate at 597 credit in March: 7.375%
• Rate savings by waiting: Only 0.125% (not the 0.375% I expected)

Monthly savings: $25/month (instead of $67/month I was expecting)

This was the risk of waiting: Interest rates could rise faster than I could improve my credit.

My 5-Year Cost Analysis: 10% Down Now vs. 3.5% Down Later

Option 1: Buy Immediately with 10% Down (What I Did)

Purchase price: $200,000
Down payment: $20,000
Loan amount: $183,150
Rate: 7.375%
Monthly payment: $1,724

First 5 years:

• Total payments: $1,724 × 60 = $103,440
• Closing costs: $4,800
• Down payment: $20,000
• Rent paid (February only): $1,380
• Total invested: $129,620

Equity after 5 years:

• Principal paid down: $27,900 (balance reduced to $155,250)
• Home appreciation: $30,000 (home now worth $230,000 at 3% annual appreciation)
• Total equity: $57,900 (down payment $20,000 + paydown $27,900 + appreciation $30,000)

Net cost after equity: $129,620 - $57,900 = $71,720

Option 2: Wait 6 Months, Buy with 3.5% Down (The Alternative)

Purchase price: $206,000 (after 3% appreciation)
Down payment: $7,210
Loan amount: $202,269
Rate: 7.00% (assuming rates didn’t rise—they did)
Monthly payment: $1,814

First 5 years:

• Rent while waiting (6 months): $11,240
• Total payments: $1,814 × 54 = $97,956 (only 54 months of mortgage vs. 60)
• Closing costs: $4,940
• Down payment: $7,210
• Total invested: $121,346

Equity after 5 years:

• Principal paid down: $24,800 (balance reduced to $177,469)
• Home appreciation: $30,900 (home now worth $236,900 at 3% annual appreciation)
• Total equity: $55,700 (down payment $7,210 + paydown $24,800 + appreciation $30,900 + higher home value)

Net cost after equity: $121,346 - $55,700 = $65,646

The Verdict: Which Option Cost Less?

Option 1 (buy now, 10% down): $71,720 net cost

Option 2 (wait 6 months, 3.5% down): $65,646 net cost

Savings by waiting: $6,074 over 5 years ($101/month average)

WAIT—that assumes rates didn’t rise and home appreciated only 3% over 6 months.

What ACTUALLY Happened (Real Scenario)

In reality:

• Interest rates rose to 7.625% by September 2024 (not 7.00%)
• Home prices in my neighborhood rose 4.5% over 6 months (not 3%)
• My landlord raised rent to $1,480 in June (not $1,380)

Recalculated Option 2 with real numbers:

Purchase price: $209,000 (4.5% appreciation over 6 months)
Rate: 7.25% (best rate at 620+ credit in September, after 0.25% rate increase)
Monthly payment: $1,872 (higher due to $209K price + higher rate)

First 5 years (recalculated):

• Rent while waiting: $11,840 (includes $1,480/month increase)
• Total payments: $1,872 × 54 = $101,088
• Closing costs: $5,020
• Down payment: $7,315 (3.5% of $209K)
• Total invested: $125,263

Equity after 5 years:

• Principal paid down: $24,200
• Home appreciation: $31,350 (home now worth $240,350)
• Total equity: $55,550

Net cost after equity: $125,263 - $55,550 = $69,713

Option 1 (what I did): $71,720 net cost
Option 2 (real numbers): $69,713 net cost

Savings by waiting with REAL numbers: Only $2,007 over 5 years ($33/month)

And I would’ve spent 6 more months renting, risked rates rising further, and paid $9,000 more for the same house.

Why I’m Glad I Bought with 10% Down at 597 Credit

Reason #1: I Started Building Equity Immediately

From March 2024 to September 2024 (6 months):

• Principal paid down: $2,850
• Home appreciation: $6,000 (3% in 6 months)
• Equity built: $8,850

If I’d waited and kept renting:

• Equity built: $0
• Rent paid: $11,240

Net benefit of buying immediately: $8,850 equity vs. $11,240 rent = $2,390 ahead by buying now

Reason #2: I Locked In $200,000 Price (Not $206,000-$209,000)

Homes in my neighborhood:

• March 2024: $200,000 (my purchase price)
• September 2024: $209,000 (4.5% appreciation)
• I saved $9,000 by buying before prices rose

My down payment difference:

• 10% down on $200K: $20,000
• 3.5% down on $209K: $7,315
• Net: I paid $12,685 more upfront

But I saved $9,000 on purchase price—so real extra cost was only $3,685

And that $9,000 in price savings translates to $60/month lower payment = $21,600 over 30 years

Reason #3: I Can Refinance in 2-3 Years

My refinance plan:

Current situation (March 2024):

• Credit score: 597
• Rate: 7.375%
• Loan balance: $183,150
• Home value: $200,000
• Equity: 10% ($20,000 down)

Goal (March 2027—3 years later):

• Credit score: 680+ (improve by paying cards, aging accounts, settling collections)
• Loan balance: $167,500 (paid down $15,650 over 3 years)
• Home value: $230,000 (3% annual appreciation)
• Equity: 27% ($62,500)

Refinance to conventional loan:

• New rate: 6.25% (at 680+ credit, conventional)
• New monthly payment: $1,031 P&I + $0 MI (conventional has no MI at 20%+ equity) + $253 taxes + $106 insurance = $1,390/month
• Current FHA payment: $1,724/month
• Monthly savings: $334/month = $4,008/year

My 10% down payment bought me faster equity buildup (27% equity in 3 years vs. 18% equity with 3.5% down)—letting me refinance sooner and eliminate mortgage insurance.

If I’d done 3.5% down, I’d need 4-5 years to hit 20% equity (instead of 3 years)—delaying refinance by 1-2 years and costing me $4,000-$8,000 in extra MI payments.

Reason #4: I Avoided the Risk of Rates Rising Further

FHA rates in March 2024: 7.375% (my rate)

FHA rates in September 2024: 7.625% (0.25% higher)

FHA rates in December 2024: 7.875% (0.50% higher than March)

If I’d waited until December to buy (6 months of credit improvement + 3 months of house hunting):

• Rate at 620+ credit: 7.50% (best available)
• Monthly payment on $210,000 home: $1,920/month
• vs. my $1,724/month = $196/month more = $70,560 over 30 years

Buying in March at 597 credit locked in a 7.375% rate BEFORE rates rose to 7.875%.

Even with my “bad” 597 credit score, I got a better rate than borrowers with 640+ credit who waited until December.

The Break-Even Analysis: When Does 3.5% Down Beat 10% Down?

When 3.5% Down Saves More Money

✅ Home prices are stable or declining (no rush to buy before appreciation)
✅ Interest rates are stable or falling (no risk of rates rising while you improve credit)
✅ Rent is cheap and stable (under $1,200/month, lease locked in)
✅ You can improve credit quickly (620+ in 2-3 months)
✅ You don’t have 10% saved (need to preserve cash for emergencies)

Example: If home prices were flat and rates were falling, waiting 3 months to improve from 597 to 625 credit would save $12,000 upfront (10% vs. 3.5% down) with no offsetting costs.

When 10% Down Saves More Money

✅ Home prices are rising fast (0.5%+ per month)
✅ Interest rates are rising (risk of higher rates while you wait)
✅ Rent is high and increasing ($1,400+/month with renewal increases)
✅ You have 10% saved (paying 10% doesn’t drain emergency fund)
✅ You plan to refinance in 3-5 years (10% down gets you to 20% equity faster for conventional refinance)

My situation had ALL FIVE factors—which is why 10% down at 597 credit was the right decision despite costing $13,000 more upfront.

What I’d Do Differently If I Could Go Back

If I’d Known My Credit Score Was 597 (Instead of Assuming 620+)

What I’d have done 6 months earlier:

• Paid off the $850 medical collection immediately (adds 15-25 points)
• Paid credit cards from 68% to 30% utilization (adds 20-30 points)
• Avoided the two credit card applications in 2023 (prevented 10-point drop)

If I’d done this 6 months before house hunting:

• Score would’ve been 630-640 (instead of 597)
• I’d have qualified for 3.5% down
• I’d have saved $13,000 upfront

Lesson learned: Check your credit score 6-12 months BEFORE you plan to buy a home—not when you’re ready to apply.

Check your real FICO middle credit score now (not Credit Karma—that’s VantageScore, not the FICO score mortgage lenders use).

If I’d Had Only $10,000 Saved (Not $18,000)

I wouldn’t have been able to buy with 10% down—I needed $24,800 cash at closing.

Options if I had limited savings:

• Option 1: Wait 4-6 months to improve credit to 620+ and do 3.5% down ($12,150 cash needed)
• Option 2: Use gift funds (FHA allows 100% gift funds—my parents could’ve gifted the full $20,000 down payment)
• Option 3: Combine gift funds + down payment assistance (some states offer $5,000-$15,000 DPA for first-time buyers)

Lesson learned: If you don’t have 10% saved, improving your credit to 620+ for 3.5% down makes more financial sense than waiting years to save more cash.

If Rates Had Been Falling (Not Rising)

In a falling-rate environment, waiting to improve credit makes more sense:

• Improve 597 → 625 in 4 months
• Rates fall from 7.375% to 7.00%
• Save $12,000 on down payment (3.5% vs. 10%)
• Save $67/month on payment (lower rate)

Total savings: $12,000 upfront + $24,000 over 30 years (lower payment) = $36,000

But in 2024, rates were RISING—so buying early at a higher credit score beat waiting for better credit at even higher rates.

The Bottom Line: My 597 Credit Score Cost Me $13,000—But Saved Me $21,000

What I paid extra for 597 credit:

• $13,000 more down payment (10% vs. 3.5%)
• 0.375% higher interest rate (7.375% vs. 7.00% at 620+ credit)
• $95/month higher payment = $34,200 over 30 years

Total cost of 597 credit: $47,200 over 30 years

What I saved by buying immediately:

• $9,860 saved in rent (avoided 6 months extra rent)
• $9,000 saved on purchase price (bought at $200K before rising to $209K)
• $2,850 principal paid down (while I would’ve been renting)
• Total savings: $21,710

Net cost of buying at 597 vs. waiting for 620+: $47,200 - $21,710 = $25,490 over 30 years

But:

• I can refinance in 3 years (once credit improves and equity hits 20%)
• I locked in housing costs (rent would’ve increased 3-5% annually)
• I built $57,900 equity in 5 years (vs. $0 equity if I kept renting)

I’d do it again—because buying at 597 credit with 10% down got me into homeownership before prices and rates rose further.

My advice:

If Your Credit Score Is 580-619

✅ You CAN get FHA approved (10% down required)
✅ Run the math: Compare 10% down now vs. 3.5% down after improving credit
✅ Consider market conditions: Rising prices + rising rates = buy now, stable/falling = wait
✅ Plan to refinance: 10% down gets you to 20% equity faster (eliminate MI sooner)

Connect with FHA loan specialists who can:

• Calculate your exact payment at 10% down vs. 3.5% down
• Show you how much home appreciation + rent increases cost if you wait
• Project your refinance timeline (when you’ll hit 20% equity)
• Provide credit improvement strategies to refinance sooner

My 597 credit score required 10% down—but it didn’t stop me from buying my home.

And I’m $57,900 richer (in equity) than if I’d waited.