How to Get a First Time Home Mortgage Loan With Bad Credit

••• house image by Cora Reed from

Today's mortgage lenders rely extensively on a borrower's three-digit credit score when determining whether that borrower qualifies for a mortgage loan. Generally, credit scores above 720 are considered top-notch, while those below 620 signify risky borrowers. First-time borrowers hoping to qualify for a mortgage loan with credit scores below 620 can qualify for a mortgage loan insured by the Federal Housing Administration (FHA).

Determine your credit score before applying for any mortgage loans. The easiest way to do this is to order your credit score from Remember, you have three credit scores, one each from the country's three credit bureaus, TransUnion, Equifax and Experian. For a fee, you can order a credit score from TransUnion from the site, and the same to order one from Equifax. As of April of 2010, consumers were not able to purchase credit scores from Experian through the site.

As a first-time home buyer, you won't have as in-depth a credit history as will consumers who have been paying mortgage loans for years. But your credit score will take into account if you've paid your rental, car and credit card bills on time.

Contact a mortgage lender and explain that you are interested in applying for a mortgage loan insured by the FHA. The government does not originate these loans, it only insures them. Private lenders originate them. The FHA's 203(b) Mortgage Insurance program is a popular one among first-time home buyers because it only requires a down payment of 3 1/2 percent of a home's purchase price. Most traditional mortgage programs require a down payment of at least 10 percent of a residence's purchase price. FHA-insured loans also allow for lower credit scores; borrowers with credit scores as low as 580 can qualify for the program.

Check with the U.S. Department of Housing and Urban Development for any first-time home buyer programs in your state. The federal department, which also administers the FHA program, maintains a list of first-time buyer assistance programs in all 50 states.

Make copies of the financial documents that will prove to your lender that despite the fact that you have never applied for a mortgage loan before you do have the financial ability to make your payments. These papers include those that help verify your gross monthly income--your last two paychecks, bank savings and checking account statements and most recent year's W-2 form--and those that verify your monthly debt obligations--your recent credit card and other loan statements. Send these copies to your mortgage lender.

Give your lender permission to run your credit. If your credit score comes back at 580 or above, it's strong enough to qualify you for an FHA-insured loan. This holds true even though most lenders consider scores of less than 620 to be bad.

Schedule a date to sign your loan closing papers, if your lender approves your application for an FHA-insured loan. At this point, you'll also have to pay any fees that go with closing the loan.