What’s a Good First-Time Home Buyer Credit Score?

April 24, 2023 - 6 min read

Buying a home is a major milestone—but it can also be an overwhelming process as a first-time home buyer. Credit plays a key role in getting approved for a loan, and your score also impacts your mortgage rate and terms. However, first-time home buyer credit score requirements can vary by loan program.

Here’s a look at what you need to know about first-time home buyer credit scores.

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First time home buyer credit score requirements

Credit score requirements for a mortgage loan aren’t one-size-fits-all. The score you need depends on several factors, and each type of loan has a specific minimum. In addition, some lenders set their own minimums. Generally speaking, you’ll need a minimum credit score between 500 and 620.

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But even though some lenders and loan programs allow lower scores, improving your credit score can help you secure a lower interest rate, thus increasing your purchasing power.

It’s important to understand the different factors making up your score. Payment history is the biggest component, making up 35% of your score. Therefore, paying your bills on time every month can boost your rating.

The amount you owe (credit utilization ratio) is another significant component, making up 30% of your score. Credit utilization is the percentage of your revolving credit in use. To calculate your percentage, add up your revolving credit balances and divide this number by your total available credit. To improve your ratio, pay off credit card balances in full every month, or keep balances below 30% of your credit limit.

Other factors making up your credit score include the length of credit history (15%), types of credit accounts (10%), and new credit applications (10%). Therefore, it takes years of responsible credit use to build good credit, and diversifying your credit can improve your rating too.

However, don’t apply for credit unnecessarily. Each hard inquiry can reduce your credit score by a few points.

What is the easiest home loan type to qualify for?

Since first-time home buyer credit score requirements vary by program, some loans are easier to qualify for with a less-than-perfect score. Here are the credit requirements for four common mortgage programs.

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FHA loan

An FHA loan is the most accessible mortgage to qualify for with a low score. You can get approved with a rating as low as 500 to 580.

These loans (insured by the Federal Housing Administration) are popular among first-time home buyers because of their low down payment. If you have a credit score of 580 or higher, you could potentially buy with as little as 3.5% down. If your credit score is between 500 and 579, you’ll typically need a 10% down payment.

An FHA loan has no income limit, so you can apply whether you’re a first-time home buyer or a repeat buyer. However, you can only use an FHA loan to buy a primary residence. The only exception is when purchasing a multi-family property and living in one of the units.

Most FHA loans require mortgage insurance regardless of your down payment amount. If you put down at least 10%, you’ll only pay mortgage insurance for 11 years.

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Conventional conforming loans

Conventional home loans are another popular choice for first-time home buyers. They allow down payments as low as 3% to 5%, and you can use this loan when buying a primary residence, second home, or investment property.

To qualify for a conventional conforming loan, you’ll need a minimum credit score of 620. Private mortgage insurance (PMI) is also required if you put down less than 20%. However, your lender can waive mortgage insurance once you accumulate at least 20% equity in your home.

VA loans

VA loans are insured by the U.S. Department of Veterans Affairs. Interestingly, the VA doesn’t have a minimum first-time home buyer credit score for these loans. Each lender sets their own minimum, typically requiring a score of at least 620.

VA loans allow borrowers to purchase with zero down and no mortgage insurance. However, these loans are only available to active-duty military, veterans, other eligible service members, and surviving spouses.

Here is a VA loan benefits summary:

  • No down payment requirement. You can finance 100% of the purchase price. You can also refinance 100% of your home’s value using a VA loan
  • No mortgage insurance. But you will pay a one-time VA Funding Fee. You can wrap it into the loan amount.
  • No minimum credit score. Although lenders are allowed to add their own minimums. Those that do often require a FICO score of at least 580 to 620.
  • Sellers can pay up to 4% of the purchase price in closing costs. If you find a motivated seller, you could potentially get into a home without paying anything out of pocket
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USDA loans

Officially called the Single-Family Housing Guaranteed Loan Program, the USDA home loan helps moderate- and low-income borrowers buy homes in rural areas.

To qualify for this type of loan, you’ll need a minimum score of 640. These “no money down” loans are insured by the U.S. Department of Agriculture and don’t require mortgage insurance, although you’ll pay an annual fee. You may only use a USDA loan when buying a primary residence in a designated region.

You can find out if the property you’re buying is located in a USDA-eligible rural area and whether you meet local income limits using USDA’s eligibility maps.

Check your USDA loan eligibility. Start here

What do lenders look for when approving a mortgage?

Mortgage lenders take several factors into account before approving a loan application.

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  • Credit score: To qualify for a mortgage, your credit score must meet a lender and loan program’s minimum requirement. These score requirements range from 500 to 640.
  • Payment history: Your payment history also affects your mortgage loan approval. A good payment history means you’ll likely pay your mortgage on time. Plus, timely payments help increase your credit score, making qualifying easier.
  • Income and employment history: Getting approved for a home loan requires stable and consistent income (at least two consecutive years). Your lender will request copies of W-2s, paycheck stubs, and your most recent tax returns. Ideally, the mortgage payment shouldn’t exceed 30% of your gross monthly income.
  • Debt-to-income ratio: Debt-to-income (DTI) ratio is the percentage of your gross monthly income you spend on minimum debt payments. It affects whether you get approved and how much you can borrow. Mortgage programs typically allow DTI ratios up to 36% or 43%. This percentage includes your future mortgage payment. Sometimes you can get approved with a ratio of up to 50%—if you have compensating factors such as an excellent credit score or a large cash reserve.
  • Assets: You’ll also provide your lender with bank and investment account statements, as well as information about other assets. Lenders must confirm that you have enough reserves to pay your down payment and closing costs.
  • Down payment: Many mortgage programs require a down payment. These can range from 3% to 5% for conventional and FHA loans. VA and USDA loans don’t require down payments, but only certain borrowers are eligible for these programs. Mortgage insurance is generally required when you buy a home with less than 20% down.

How does the mortgage pre-approval process work?

Before house hunting, get pre-approved for a mortgage to know what you can afford early on. To start the process, you’ll need to gather supporting documentation such as:

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  • Most recent W-2s, paycheck stubs, and tax returns from the previous two years
  • Year-to-date Profit and Loss statement, if you’re a self-employed borrower
  • Record of support payments (alimony, child support)
  • Bank account and investment account statements
  • Gift letter (if you’re receiving gift funds to cover mortgage-related expenses)
  • Copy of your driver’s license

You’ll complete an application and forward this information to the mortgage lender. The lender will check your credit history and review your financial history to determine if you’re eligible.

A mortgage pre-approval typically lasts 60 to 90 days, so don’t get pre-approved until you’re ready to start the buying process.

It’s also important to comparison shop when buying a home, which involves getting rate quotes and pre-approvals from multiple lenders. This lets you compare interest rates, fees, and closing costs.

Ideally, you should comparison shop within a two-week window so that multiple inquiries appear as “one” hard pull on your credit report.

Next steps

Ready to move forward with a home purchase? The next step is gathering your financial documents and checking your credit history. Visit annualcreditreport.com to get copies of your credit reports. Take steps to improve your credit rating and dispute errors on your credit file.

If you’re thinking about buying within the next few months, contact at least three lenders to start the pre-approval process. This can include your personal bank or credit union, financial institutions in your area, and online lenders.

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Valencia Higuera
Authored By: Valencia Higuera
The Mortgage Reports contributor
Valencia Higuera is a freelance writer from Chesapeake, Virginia. As a personal finance and health junkie, she enjoys all things related to budgeting, saving money, fitness, and healthy living.
Aleksandra Kadzielawski
Reviewed By: Aleksandra Kadzielawski
The Mortgage Reports Editor
Aleksandra is the Senior Editor at The Mortgage Reports, where she brings 10 years of experience in mortgage and real estate to help consumers discover the right path to homeownership. Aleksandra received a bachelor’s degree from DePaul University. She is also a licensed real estate agent and a member of the National Association of Realtors (NAR).