Can You Buy a House With Bad Credit If You Are a First Time Home Buyer?

Before getting approved for a home loan, your credit score will be the first hurdle to get over.

Unless a buyer is planning to purchase a home using all cash, his credit score will determine whether he will qualify for a home loan. Loans insured through the Federal Housing Administration (FHA) offer first-time home buyers the easiest qualifying requirements. As of November 2010, many major lenders, such as Bank of America and Wells Fargo, are becoming more stringent on credit scores and raising this requirement for FHA loans .

Home Loan Credit Requirements

The FHA loan is the most popular loan product for first-time home buyers because of the low credit score and down payment requirements. To qualify for an FHA loan, an applicant must have a credit score between 620 and 640, depending on the lender she works with. The borrower must also have 3.5% down payment for the purchase of the home to qualify for an FHA loan. Loans that are not insured through the government, or conventional loans, require a 720 FICO score and typically a 20% down payment.

Additional Loan Requirements

Credit is not the only criteria a lender will look at when qualifying a borrower. Lack of credit history can also be a determining factor to getting approved for a loan. If a borrower has a foreclosure on his credit history, it must be at least three years prior to applying for the loan. Bankruptcies must be two years old. The borrower must also show two years of employment to be approved for an FHA loan.

A Higher Credit Score Can Save Money

Even though a borrower may qualify with a 620 FICO score for an FHA loan, the interest rate may not be the lowest one on the market. The lender views a borrower with a higher credit score as less likely to default on the loan. The lender will offer her a lower interest rate. It is to a home buyer's advantage to have the highest possible credit score when applying for a loan. A lower interest rate keeps more money in a homeowner's pocket over time.

Credit Repair

If having a low credit score is stopping you from obtaining a loan approval, there are ways to begin repairing your credit. Start making payments on any delinquent accounts and make all your payments on time. You can obtain a free credit report once a year online. Check for errors that you can have removed. The three credit bureaus (TransUnion, Experian and Equifax) offer credit monitoring services that will alert you to changes in your credit score, for a monthly fee. Repairing credit takes time. You should see an improvement in six months to a year.