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First-Time Home Buyer Credit Score

First Time Home Buyer

Are You Eligible for a First-Time Home Buyer Program?

First-time home buyer grants and programs are set up to help borrowers get the funding they need to close their loans. But what credit score do you need to qualify for these grants and programs?

A licensed mortgage lender can be very helpful in answering your questions as there are specific rules for first-time home buyers depending on the grant or program which varies based on the city, county, or state sponsoring the program.

You need to also know that even if you have owned a home before, you could potentially still qualify depending on the program or grant.  Generally speaking, those who have not owned a home in the last three years are considered first-time home buyers.

Secondly, it’s estimated that roughly 4 in 10 down payment mortgage assistance programs are available for all buyers, not just first-time buyers.

So what kind of credit score do you need to qualify for these programs?

In reality, you don’t need to have flawless credit to qualify for first-time home buyer programs.  A tri-merge credit report provides the lender with detailed information and credit scores from all three credit bureaus combined into a single merged report. When using a tri-merge credit report, it’s common for lenders to use the middle of the three credit scores. When you have more than one borrower, the lowest of all the middle scores is used for qualification purposes.  

A credit score (which can in theory range from 300 to 850) of around 640 is usually sufficient to meet minimum credit score requirements for first-time home buyer assistance but this varies depending on the program.

When it comes to looking for a conventional mortgage, you may need a slightly higher score of around 680. However, your odds of getting approved are better with lower debt to income ratios and higher credit scores.

Learn how to improve your credit score.

FHA Loans for First-Time Home Buyers

FHA loans are a viable option if your credit score or credit history do not meet conventional loan program requirements.  These loans are insured by the Federal Housing Administration, so they are ideal for first-time home buyers with less-than-stellar credit or those who can’t afford to put down the recommended 20% of the home’s value. A first-time home buyer can buy their home with a credit score as low as 620 while putting down as little as 3.5% of the home’s purchase price.

USDA Loans

If your first home happens to be in a qualified rural area of the country, you could qualify for a USDA loan. With this type of loan, no down payment is required. However, the USDA requires a Guarantee Fee and monthly mortgage insurance.

Credit scores for USDA loans are quite flexible, and first-time home buyers could qualify with scores under 600, especially if extra payment history documentation is available.

VA loans

For active-duty members, veterans, and their spouses, a VA loan comes with lower interest rates, doesn’t require a down payment, and works well for first-time home buyers with less- than-perfect credit.

These borrowers may also qualify for first-time home buyer assistance depending on the program, grant, and location of the property being purchased.

“What about getting a mortgage?”

No matter if you qualify for a first-time home buyer program or not, you will still need a mortgage to purchase your home.

It’s important to understand what it takes to qualify for a mortgage:

  • Check your credit reports and scores for the last three months at minimum in case you need to take care of any issues.
  • Divide your monthly debt payments by your monthly gross incomes to find your ratio of debt-to-income. Mortgage lenders typically want to see a ratio of less than 36% to prove you can handle paying your monthly mortgage payments. They will also want to see that your housing costs each month are under 28% of your gross income which varies depending on the program.
  • While you will need a minimum of 620 for conventional financing, there are other loan options for lower credit scores. Just remember that with a lower credit score, you may end up paying a higher interest rate.

How low will your payment be?