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The Minimum Credit Score Needed for a First-Time Home Buyer

If you’re a first-time home buyer, you might be stressed about your less than perfect credit score. This guide will help walk you through the different types of loans available to first-time buyers, so you understand the minimum credit score needed to finance your dream home.
If you’re a first-time home buyer, you might be stressed about your less than perfect credit score. This guide will help walk you through the different types of loans available to first-time buyers, so you understand the minimum credit score needed to finance your dream home.

If you’re a first-time home buyer, you likely have some questions about the buying process, particularly when it comes to dealing with the financial aspect. Trying to figure how much of a down payment you might need or how high of a credit score is required for loan approval can be overwhelming.

While there’s no one credit score that will get you approved and every situation is different, there are a few solid guidelines you should be aware of to help you plan for your financial future. Here’s what you can expect to pay as a first-time home buyer, depending on your credit score.

FHA Loan

An FHA loan is one many first-time home buyers flock to, and for good reason. These loans are backed by the Federal Housing Administration and insured in case the loan defaults. FHA loans are also beloved by first-time home buyers because they require a smaller than average down payment of 3.5%. However, this low down payment depends entirely on your credit score.

To be eligible for an FHA loan, you’ll need a credit score of at least 500. However, even then, there’s no guarantee you’ll get approved.

Borrowers with credit scores over 580 will be approved for the low down payment option of 3.5%. If your credit score is between 500 and 579, you may still get approved, but not for the low down payment. Instead, expect to pay up to 10% on your down payment.

VA Loan

If you’re a service member or related to one, you might qualify for a VA loan. These loans are an excellent way for first-time home buyers to purchase a house without having much money saved for a down payment.

VA loans are unique because many times buyers can qualify for no- or low-down-payment loan options. While VA loans do not have a minimum credit score requirement, typically applicants need a score of 620 or higher to get approval.

While first-time home buyers might qualify for no down payment, VA loans do come with processing fees of approximately 2.5% of the home price, which is still lower than paying a 3.5% down payment with an FHA loan.


First-time home buyers with lower than average credit scores who are unable to get approved for a conventional loan, yet still need to secure housing, can explore USDA loans. USDA loans require no down payment and help borrowers unable to qualify for traditional mortgages.

USDA home loans can only be used to housing in rural or suburban areas, in an effort to improve local, rural economies. These loans are guaranteed and have surprisingly low rates for having no down payment requirement. Applicants will need to purchase mortgage insurance if approved for no down payment.

Although there is no published minimum credit score, applicants with a score of 640 or above receive streamlined loan processing. Those with a higher credit score will often lock in the lowest rates, while those with the lowest scores will be subject to higher rates.

FHA 203K Loan

If you aren’t finding the home of your dreams, maybe you’re considering purchasing a fixer-upper property and renovating it into your future home? An FHA 203k loan is a renovation loan that covers not only the purchase of a property but also the repair costs. Like regular FHA loans, these loans are also backed by the Federal Housing Administration.

In order to be eligible for this type of loan, you should have a credit score of at least 640 or higher. This can secure a down payment as low as 3.5%. On the downside, these loans often have higher interest rates than traditional loans, with some being as much as 1% higher than average mortgage interest rates.

Conventional Loans

Conventional loans are the most popular option chosen by buyers today. They are offered by private lenders, rather than guaranteed by a government agency. These are the loans you would apply for at your bank, credit union, or other financial institution.

Most conventional loans require higher credit scores (620 or higher) than other loan types. On the plus side, however, conventional loans vary greatly from lender to lender, with some institutions allowing alternative credit to be reviewed. This could give you a chance to get approved with less than perfect credit.

On the downside, conventional loans traditionally require higher down payments, with many as high as 20%. The lowest down payment first-time home buyers can typically expect from conventional loans is 5%.

What to Do If Your Credit Is Poor

While there are options above for securing a loan with bad credit, you might find yourself locked into high-interest rates or unable to afford your monthly mortgage, due to not being able to save for a down payment.

It’s recommended you take time to save for a down payment, in order to lock in the best interest rate possible. While saving for your down payment, there are also things you can do to improve your credit to boost your chances of approval at a low rate. (Find out how to improve your credit in only six months here).

When you’re ready to explore financing options, it’s recommended that you reach out to a buyer’s agent before getting started. An agent can walk you through the entire buying process and help answer any questions about financing before you get started. Buyer’s agents can also provide financial guidance and connect you with trusted lenders and loan officers.

If you partner with a Clever Partner Agent, you can also receive a home buyer rebate. Partner Agents may be able to rebate you with up to 1% of their commission at the time of closing. This puts more money back in your pocket when you need it most.


Reuven Shechter

Reuven Shechter is the Outreach Coordinator at Clever Real Estate, the free online service that connects you with top real estate agents to help save on commission. He spreads the word about Clever, disseminating studies to journalists and developing relationships with media outlets. Reuven is passionate about investing in real estate and creating lasting success for families. His writing has been featured in Max Real Estate Exposure, Leverage Marketing, and more.

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