Several trusted mortgage companies have announced new first time home buyer loans that encourage consumers to stop renting. If you have your sights on buying a home this year, credit scores are probably on your mind. After all, the higher your credit score, the lower your rate, and the better chance you will be approved for the loan.
What Credit Score is Needed for a First Time Home Buyer Loan this Year?
What is the minimum credit score required to buy a home in 2024? Keep reading to find out more!
Credit Scores Needed to Buy a Home
Every mortgage company is different, but you will generally need at least a 620-credit score to qualify for a first time mortgage. There are exceptions, however, as we will detail later in this article.
Conventional Loans
Conventional loans that are backed by Fannie Mae and Freddie Mac generally require a 620-credit score to get approved. Conventional loans are often the best choice for people with better incomes and credit scores. Also, a conventional loan does not require mortgage insurance if you have at least 20% down.
FHA Insured Loans
FHA house loans are the big exception to the 620-credit score minimum we mentioned. FHA mortgages are backed by the US government, so the lenders can offer lower credit score criteria to borrowers.
With the federal guarantee, many lenders offer FHA loans with a 3.5% down payment and credit score requirement of 580 for that level of down payment. In some cases, you may even qualify for a home loan with a 500-credit score, but a 105 down payment is needed.
If you have a credit score under 600, it may be necessary to check with several lenders to find out if you can get approved. Some lenders may offer loans with a sub-600 score, but not all of them.
Fortunately, lenders that offer FHA loans don’t have to follow all of the FHA guidelines when it comes to credit score and other lending factors. That said, some lenders may have higher credit score standards than others, too. The reason some lenders do this is they get penalized if they have too many FHA loans that default.
The good news is that lenders are no longer at risk for losing the ability to underwrite FHA loans if its lower credit score loans are doing similarly to loans in the same credit score range.
What this means for you is you may be able to find more FHA mortgage lenders who will consider lending you money with a lower credit score.
What About Other Lending Factors?
We have covered what you can expect to need for a credit score to buy your first home. But what about other lending factors? Credit is important but so are these:
- Income: Lenders will review how much money you make. If you are buying a home that is well below your means, you may be able to qualify with a lower credit score.
- Debt-to-income ratio: Lenders also look at your monthly debt payments to see how much of your income services debt obligations. Most lenders want to see a DTI of 43% or lower. However, you may qualify with a higher DTI with more income or a bigger down payment.
- Down payment: The bigger down payment you have, the lower your interest rate, generally. With more money down, the lender may be able to overlook a lower credit score, but this varies by lender.
- Savings: Lenders also want to see you have liquid savings and can afford your mortgage for a few months if you lose your job or have unexpected expenses.
- Job history: Most lenders want to see that you have been in the same job or industry for 24 months.
What About a Home Loan With Bad Credit?
It’s generally necessary to have at least a 620-credit score to get a first home loan, unless you go with an FHA loan. With FHA you can have a 3.5% down payment with a 580-credit score, so look towards FHA financing if you have a low credit score.
However, the lender will review your application more carefully if you have a low credit score. Your chances of being approved are higher if you have a clean, on-time payment history for the last year or so. If you have missed a lot of payments, you could have more trouble getting approved.
How Can You Improve Your Credit Score?
Even if you go the FHA route, you will have an easier time getting approved for a home loan with a higher credit score. So how can you get your credit score higher? First, you should start focusing on improving your credit score about a year before applying for a home mortgage.
Some ways to improve your credit score include:
- Be an authorized user: If you have a friend or family member with a high credit score, ask to be an authorized user on one or more of their credit cards. This will slightly raise your score.
- Pay bills on time: This is the best way to increase your credit score over several months. Don’t miss any payments, especially six months to a year before applying for a loan.
- Pay down debt: If you can afford it, pay down credit cards as much as possible. Paying down debt by a few thousand dollars can greatly increase your credit score quickly.
Summary
It’s possible to get a home loan as a first-time buyer with a 620 and even 580 credit score. The higher your score, the better and easier it will be to get approved, though. If you have low credit scores, ask your lender about an FHA loan. If you are approved and make your payments on time for a few years, you may be able to refinance and get into a conventional loan too.
Always remember that you have a better chance of being approved with a lower credit score if you have a larger down payment. You are considered a better risk if you have more money in the deal. So, as you work to boost your credit score, also try to scrape together more money for your down payment.
What Are the Biden First Time Home Buyer Grants and Loan Programs?
Are you interested in purchasing a home for the first time? Then you’ll want to find out about Biden first time home buyer programs and first time home buyer grants. These programs can make it much easier for many people to buy their first home. Keep reading to find out about Biden first time home buyer programs.
Note that some of these programs have not become law yet. But there are several programs mentioned here that are available at the federal and state levels.
First, in April 2021, Congress introduced First-Time Homebuyer Act of 2021. The bill would make changes to the tax code to give first-time buyers as much as $15,000 in refundable tax credits at the federal level.
This program passed recently and makes a federal tax credit of 10% of the purchase price available to first-time buyers. It is a refundable credit, so if it lowers the person’s tax bill to zero, they would get the rest of the credit back as a check. However, if they are married filing separately, the most the credit would be worth is $7500. Keep an eye out if this program passes in 2022.
The Down Payment Toward Equity Act of 2021
Another first-time home buyer mortgage program that may be passed soon is The Down Payment Toward Equity Act of 2021. This would provide up to $20,000 in down payment help for first-generation Americans and permanent residents.
If you are in a group the government says is socially and economically disadvantages, you could get up to $25,000.
Other Federal and State Programs for First-Time House Buyers
If you want other first-time home buyer loans, below are some of the most popular active programs.
Government-Backed Home Loans
One of the most popular ways to get a home for first-time buyers today are government backed programs. FHA is one of the biggest federal home loan programs out there. If you are a first-time homebuyer, this program has appeal. First, you may only need 3.5% down to buy the home.
Having such a low-down payment can be a huge help because many first-time buyers do not have equity built up or family who can assist with a down payment.
FHA programs also have reasonable credit requirements; many can qualify for an FHA loan with only a 580-credit score. It’s easier to get a loan with a 620 score but shop around and you may find a lender who can help. The interest rate on FHA loans is reasonable and comparable with conventional rates.
Another fantastic option is USDA loans, which are intended for lower income Americans in rural areas. These loans offer low interest rates and many with lower credit scores can qualify. Usually, a 620 or 640 credit score is needed to get a loan.
USDA loans are one of the few programs left with a 100% down payment option. You can buy a home with no down payment if your credit score is high enough.
VA home loans also help military veterans and active military buy a first home. Low credit scores are often ok and 100% financing is available.
Note that all of these government-backed programs are available to people who are not first-time home buyers, too. But they do help people who have never owned a home because of the easier credit and income criteria, as well as lower down payments.
HomePath Ready Buyer Program
Fannie Mae has a first-time home buyer program that lets you purchase a foreclosed property for only 3% down. You also can apply to get 3% of your closing costs paid for, too. Note that Fannie Mae sells these homes in as-is condition, so you may need to fix a few things before you are ready to move in. But closing cost help can make it easier to afford the repairs. This HomePath program is made for first-time home buyers who will live full time in the home.
Freddie Mac also has the Home Possible loan that has only a 3% down payment. The loan is made for first-time home buyers and retirees. There are low interest rates available. You also can get down payment help in the form of gifts, loans, and grants.
Neighborhood Assistance Corporation of America (NACA)
This national nonprofit organization helps financially unstable people find lenders who will work with them to buy their first home. When the organization finds a lender to work with the borrower, there is no down payment needed and closing costs are covered. You also don’t have to meet credit criteria, but you will need to prove you have the income to pay the mortgage.
Good Neighbor Next Door
This program is sponsored by HUD and offers first-time buyer help for police officers, firefighters, EMTs and teachers. Borrowers can get as much as 50% off the home price if it is located in a revitalization area. You need to live in the home for three years. Down payment and closing cost help also are available. You can look for a home to buy on the HUD website. The Good Neighbor loan program makes it possible for qualifying buyers with low income to get a fantastic deal on a first home.
State First-Time Buyer Programs
Every state has its own 1st-time buyer programs you should become familiar with. If you don’t find a federal program that can help you get into your first home, do a search for first-time buyer programs in your state. For example, Texas offers the My First Texas Home Program. This is a 30-year home loan with a low rate and up to 5% in down payment help. FHA, USDA, and VA work with this program, so you can put as little as 3.5% down and possibly have that entire amount covered by the program. This program requires you to pay the money back, but you don’t need to do so until you sell the property. When you sell, the money is taken out of your profits, so you don’t have to write a check.
You can qualify for My First Texas Home Program with only a 620 FICO score, but you will need to have enough income to cover the mortgage. The state of Texas, as well as many others, also offer a mortgage credit certificate. This is a federal tax credit for some of the annual mortgage interest you pay. The credit can be 20% or 30% of the interest, depending on how big the mortgage is. The maximum benefit per year is $2000.
You can combine your mortgage credit with a first-time buyer home loan in your state. But you don’t have to have that kind of loan to get the certificate.
What to Remember on 1st Time Buyer Programs
There are many federal and state programs set up to help first-time home buyers and other lower-income Americans purchase a home. The first step is to look for federal programs, but there are many state options available if you look. Some areas also have first-time buyer programs for their specific county.
As always, you should always look at federally backed loan programs when you buy a first-home. These are generally the easiest loans to qualify for.
FHA, USDA, and VA loans have reasonable credit requirements and low down-payment options.
Talk to your mortgage lender about first-time home buyer programs. They will usually have the best knowledge about local programs that you can qualify for.
Then, you will be on your way to buying your first home, and it was easier than you might have thought.
Best First Time Home Buyer Grants in 2024
There are many ways you can get help as a first-time homebuyer.
But there is one thing that first time home buyer grants have those other financial options don’t: You don’t need to pay the grant back.
Who wouldn’t want to get financial help to buy a home you don’t have to pay back?
The funds you receive from the first-time home buyer grants can pay for the down payment or closing costs.
You also may find a grant program if you have bought a home before, too.
Below are five of the best first-time home buyer grants in 2022. Also, check with the housing authority in your state; they may have excellent grant programs available too.
This is one of the best first-time home buyer loans on the market today. It is a homebuying program offered by Fannie Mae, so it is backed by the federal government. With this popular first-time home buyer program, you can get 3% of the purchase price for closing costs. However, you need to buy a home that participates in the HomePath program. These are usually foreclosed homes that Fannie Mae owns. It helps to work with a real estate agent who is familiar with the HomePath program; they can help you find a qualifying home.
This non-profit program offers down payment and closing cost help that can be up to 5% of the purchase price. You don’t need to be a first-time homebuyer, but you will need to choose a lender who works with the program.
Bank Of America is one of the largest home lenders in the US. They offer two grants to help you pay for closing costs and the down payment. These are the America’s Home Grant and Down Payment Grant programs. America’s Home Grant offers $7500 in home lending credits to pay for your closing costs. The Down Payment Grant offers $10,000 in help for closing costs. However, you need to get your loan from Bank of America and talk to your tax advisor about tax implications.
If you buy a home in an area the US government says is in a low to moderate income area, you may get a $2500 grant from Chase Bank to cover closing costs or the down payment. Talk to your loan officer to find out if the home you want is in the appropriate area.
Good Neighbor Next Door Program
This is actually a forgivable loan, but it’s still worth mentioning. This program offers money to firefighters, teachers, police officers, and EMTs. It is offered by HUD and provides a 50% discount on homes in areas that are being revitalized.
If you live in the home for at least three years, you will get the property at 50% off the list price and you don’t have to pay it back. Imagine getting a 50% discount on a home and how much money you can save. You need to work with your lender and agent to find a home in a revitalizing area that qualifies, however.
How To Qualify for Housing Grants
If you are a first-time homebuyer, there are many grant programs available at the federal and state levels to help you out. If you are a low or moderate income home buyer, you can often get the help you need.
How do you qualify for these grants? Every program is different but these are the general guidelines:
- Limits on income: Many programs say you have to earn 80% or less of the median income in the area to qualify. The limits on income also vary according to how many people are in the home.
- Limits on house price: You may be limited to a certain home budget, but they vary according to the housing market.
- How much you put down: Many home buyer grants say you need to put some money down. 1% of the purchase price is a common number.
- Residence: You usually can only qualify for a grant if the home will be your primary residence.
- Education: Grant programs often require you to do a homebuyer education course. It only takes a few hours online, so it’s worth doing to get free money for a home purchase.
Where Else to Find Homebuyer Grants
The national programs mentioned above are a great place to start. But as you look for a home and talk to agents and lenders, keep your ear to the ground.
There are many local credit unions and small banks that offer first-time homebuyer grants, too. For example, there are banks in some major cities, such as Kansas City, that offer a grant of $3000 to first-time homebuyers who qualify.
There also is a bank in Illinois that has a first-time homebuyer program that can give a grant of $2000 for the down payment.
There also are other assistance programs that can help you buy a home, but you have to pay them back:
- DPA second mortgage: This is a down payment assistance grant that many state housing agencies offer. This program uses a first mortgage to pay for the home and a second mortgage to pay for closing costs or the down payment. It comes with a low interest rate, but you still have to pay it back over time.
- Deferred payment loan: This program allows you to defer the loan payment until the home is sold or you pay it off. It doesn’t accrue interest.
- Forgivable loans: This assistance can be free if you stay in the home long enough. You might get $5000 in help for a down payment, but you can have the loan forgiven if you live in the home for 10 years.
The Reality of Buying Your First House
There are many places you can find first-time homebuyer grants across the country and in specific communities. Talk to your lender and agent to find even more opportunities than the ones mentioned here.
About RefiGuide
Bryan Dornan is a financial journalist and currently serves as Chief Editor of RefiGuide.org. Bryan has founded several mortgage and marketing companies and has worked as a loan officer and mortgage broker in the industry for over 25 years and has a wealth of experience in providing mortgage clients with the highest level of service in the industry. Bryan's continual focus is to promote affordable home-ownership to consumers like you across the United States. He also writes for RealtyTimes, Patch, Buzzfeed, Medium and other national publications. Find him on Twitter, Muckrack, and Linkedin
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