What Credit Score Is Required for a First Time Home Buyer Loan?

by Don Rafner

Buying your first home can prove a challenge. You'll need to prove to your lender that you have the monthly income to afford your mortgage payments. You'll need to show your lender that you have a stable job. And you'll also have to show that you have a history of paying your bills on time, something that your three-digit credit score will either prove or disprove. No one set credit score qualifies you as a first-time buyer. But the higher your score, the more likely you are to land a mortgage loan with a low interest rate. And the lower your rate, the lower your monthly payments.

Credit Scores

Lenders rely on your credit score to determine how likely you are to pay your mortgage loan back on time. If you have a history of paying your bills on time and not running up credit-card debt, the odds are that your credit score is a strong one. If you routinely miss your credit-card payments or pay your car loan three weeks late, your credit score will suffer. In general, lenders reserve their lowest interest rates for borrowers with credit scores of 740 or higher on the FICO scale. Conventional lenders might not give first-time -- or any -- home buyers a mortgage loan if their credit scores are under 620 on this scale.

First-Time Buyer Challenges

It can be more difficult for first-time buyers to generate that magical 740 credit score. That's because first-time buyers often don't have long credit histories. The length of your credit history is one of the factors that determines your credit score. The good news, though, is that even if you've never owned a home before you can build a solid credit history by making purchases with credit cards and then paying off these purchases in full each month. You can also boost your credit by paying student-loan and car-loan payments on time.

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The U.S. Department of Housing and Urban Development's Federal Housing Administration is a good option for first-time home buyers. Loans insured by the FHA -- they are still originated by private lenders -- require a down payment of just 3.5 percent of a home's purchase price. This is important for first-time buyers who often have little cash for a down payment. Most conventional mortgage loans require down payments of at least 5 percent. The FHA low down payment has a catch, though. You'll need a credit score of at least 580 to qualify for that 3.5 percent down payment. If your credit score on the FICO scale runs from 500 to 579, you'll still qualify for an FHA loan, but you must come up with a down payment of at least 10 percent of your home's purchase price. If your credit score is under 500, you won't qualify for an FHA loan at all.

Conventional Loans

First-time buyers have no single credit score that they must hit if they want to apply for a conventional mortgage loan. First-time buyers with scores under 740 will probably have to pay a higher interest rate, though this varies by lender. First-time buyers might be able to nab lower rates if they have a steady job and a high amount of income compared to their monthly debts.

About the Author

Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.

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