What Is the Minimum Credit Score I Need to Get a First-Time Home Loan?

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Mortgage application with a pen
Mortgage application with a pen (Image: maxuser/iStock/Getty Images)

Your credit score is one of the main factors mortgage lenders consider when you're buying a home. Lenders set credit score minimums depending on the loan type. There are conventional loans specifically geared toward first-time buyers -- those buyers who haven't owned a home in three years. Federal Housing Administration loans, although not limited to first-time buyers, largely serve first-timers and offer flexible qualifying criteria.

Conventional Loans for Good and Fair Credit

Lenders implement different minimum credit scores for their loan programs. In general, credit scores between 660 and 669 are considered "good," and scores between 620 and 659 are "fair." As of the time of publication, conventional loans for first-time buyers catered to borrowers with fair to good credit. Most conventional loans are backed by Fannie Mae or Freddie Mac, the major purchasers of home loans. Conventional first-time buyer programs, which require only 3 percent down and completion of homebuyer education, generally require at least a 650 credit score.

FHA Loans for Fair-Credit Borrowers

The FHA insures loans for first-time buyers and borrowers who face other challenges to homeownership, such as low credit scores or modest incomes. Lenders approved to participate in FHA programs make the loans and the FHA guarantees reimbursement in case of borrower default. FHA loans require 3.5 percent down for borrowers with credit scores down to 580. However, lenders can impose more stringent credit-score minimums, usually calling for a score of at least 620 or 640.

FHA Loans for Buyers With Bad Credit

The FHA allows credit scores down to 500. However, there are few lenders willing to implement this minimum credit score standard when making FHA loans. Should a first-time buyer find a lender that accepts scores between 500 and 579, the FHA requires a minimum down payment of 10 percent, instead of the minimum 3.5 percent. An increased down payment requirement lowers the FHA's and the lender's risk, as buyers who contribute more money toward a home are less likely to default.

How Lenders Choose Credit Scores

Lenders pull your three FICO scores and use the middle of these scores for qualifying purposes. Should you only have two scores, lenders use the lower of the two to qualify you. TransUnion, Equifax and Experian, the three major credit reporting bureaus, generate individual scores based on credit use, account history, age and of type of credit accounts. When there is more than one buyer, the lender uses the middle score of the borrower with the lowest credit.

Paying Down Debt to Raise Scores

You can make a higher down payment to compensate for a poor credit score, or you can put additional funds toward debt repayment and increase your score for a low-down-payment loan. Collections, judgments and high credit card and loan balances lower your scores; reducing or paying off debt can increase your scores. The decision whether to increase your down payment or boost your scores depends on your individual financial circumstances. Discuss the ways you can qualify for a first-time homebuyer loan with a mortgage professional.

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