Advice for First-Time Home Buyers with Poor Credit - Quicken Loans Zing Blog

Your credit score plays an important role in the home buying process. It’s how mortgage lenders determine your ability to responsibly borrow and, more importantly, pay back a loan.

A high credit score will not only qualify you for a loan but will also allow you to access more mortgage options. A low credit score could limit your options of – if not altogether prevent you from – getting a loan.

This can pose a problem for today’s first-time home buyers, as millennials have lower credit compared to the previous generation at the same age. If you find that you’re in the same boat, don’t worry – homeownership could still be a reality for you.

Let’s discuss what home loan options are still available with a lower credit score and then move into how you can improve your credit score.

Types of Loans for Bad Credit

In order to determine your creditworthiness, loan qualification and even interest rate, a mortgage lender will look at your median FICO® Score. These credit scores are calculated based on factors such as:

  • Payment history
  • Amount owed
  • Length of credit history
  • Types of credit
  • New credit

Using information from three major credit bureaus (Equifax, Experian and TransUnion), FICO compiles findings to assign individuals a credit score between 300 – 850. When determining if a borrower is qualified for a mortgage, lenders consider credit scores as well as other factors, such as income and debt-to-income ratio (DTI).

Here are the minimum credit scores needed for different types of mortgages:

  • Conventional loan: 620
  • FHA loan: 580
  • Department of Agriculture (USDA) and Veteran Affairs (VA) loan: No universal standard specified, but Quicken Loans requires 640

It’s important to remember that there’s more to qualifying for a mortgage than a high credit score. It’s also important to know that each lender might require a different credit score. At the end of the day, you’ll have a higher chance of getting approved for a loan if you have a higher credit score. You’ll also have more mortgage options available to you.

If you find yourself on the lower end of the credit score spectrum, the following home loan options might still available to you.

FHA Loan

FHA loans offer a low down payment option (as little as 3.5%) and have lower qualification requirements as far as credit and DTI, compared to conventional loans.

With an FHA loan, you can qualify for a loan with a median FICO Score as low as 580. In order to qualify for an FHA loan with a credit score that’s that low, you’ll need mitigating factors like a low DTI ratio. Additionally, if you declared bankruptcy in the past, you might still be able to qualify for an FHA a year or two after the date of your bankruptcy, as long as you maintained a good credit score after your debts were discharged.

The same goes for a previous home foreclosure. If you foreclosed on a former home but have maintained a good credit score since then, you might be able to qualify three years after the foreclosure date.

Lastly, an FHA loan allows you to have a higher DTI ratio compared to conventional loans, as long as you have a credit score in the mid- to high-600 range (or higher). This is beneficial for first-time home buyers with low income who have debt.

One thing to keep in mind with an FHA loan is that if you put less than 20% down, you’ll have to pay mortgage insurance premium (MIP) for the life of the loan. You could make a down payment of 10% to avoid MIP for the life of the loan, but you’ll still pay it for at least 11 years (unless you refinance once you’ve reached 20% equity in your home).

VA Loan

If you’re an active duty military member, you might also be able to qualify for a VA loan with lower qualification requirements, such as no required down payment, higher allowed DTI and no mortgage insurance payments.

There is no standard required credit score for a VA loan, although some lenders will have a number in mind. For example, Quicken Loans requires a credit score of 620 to qualify for a VA loan. Like an FHA loan, a VA loan is also forgiving on past financial difficulties, like bankruptcy.

There is no down payment required for a VA loan. Additionally, there is no mortgage insurance necessary for a VA loan; instead, you pay a one-time funding fee that can be paid at closing or built into the loan.

Even though the required credit score for a VA loan is higher than an FHA, a VA loan is more lenient with DTI ratios, allowing a ratio as high as 60% in order to qualify for a fixed-rate loan.

Keep in mind that in order to qualify for a VA loan, you have to be currently serving in the United States military, be an honorably discharged veteran or be a not-remarried surviving spouse of a veteran or service member who died in service. You must be able to obtain a VA Certificate of Eligibility (COE), and either you or your spouse (if you’re actively deployed) must live in the home.

Local and Federal Assistance Programs for First-Time Home Buyers

As a first-time home buyer, there are various assistance programs and resources that make the home buying process more attainable.

While Quicken Loans doesn’t offer any in-house programs, we do accept the following.

  • HomePath Ready Buyer Program: Fannie Mae offers this product to first-time home buyers (people who have not owned a home in the past three years) the option to purchase foreclosed properties as-is for as little as 3% down. It also offers closing cost assistance in the form of seller concessions.
  • Government and charitable grants: The Department of Housing and Urban Development (HUD) offers a list of state and local home buying programs. You can also look for charitable organizations that will help with the financing of a home.
  • Employer assistance: Some employers offer loan assistance that is forgivable if you stay with the company for a certain number of years. You might also be able to get assistance from your labor union.
  • Borrowing from retirement funds: After checking with your financial advisor/tax professional for advice, you could take a loan from your retirement funds to be paid back over time on a set schedule and use it for down payments or other mortgage transaction costs.
  • Mortgage credit certificate: This is a state or local government option that is available for low- to moderate-income buyers to take a credit for a reduction of your tax bill based on your mortgage interest.

Before you consider locking into one of these options, make sure you speak with a Home Loan Expert for more specific qualifications.

Ways to Improve and Monitor Your Credit Score

In some cases, a poor credit score (as well as other financial factors) might lead to you being turned down for a mortgage. If this is the case, you should talk with your lender on why you were denied for a mortgage.

Sometimes a low credit score can be the result of identity theft or previous challenges that no longer affect your financial stability. Be sure to have your payment records and other documentation nearby to help verify your case for a home loan.

If you’re unable to get approved for a home loan because of your credit score, it’s time to build up your credit score. If you’re new to credit and were denied because of your lack of credit history, there are a few ways you can start to show a history of responsible repayment:

  • Apply for a secured credit card
  • Get a co-signer
  • Become an authorized user
  • Pay off your student loans, auto loans or rent

If you have credit but maybe had a rough financial past, there are ways you can improve your credit score, which require time. You must be able to prove at least six months of timely payments to start building your score.

Here are a few ways to do so:

  • Pay your bills on time
  • Don’t use more than 30% of your credit card’s limit
  • Don’t open too many accounts at once
  • Keep your existing account open
  • Check your credit card statements regularly

To summarize, never spend or borrow more than you can afford to pay back and make sure you always make your payments on time. While it might take some time to improve and raise your credit score, the effort is worth the reward.

Additionally, make sure you’re monitoring your credit score by checking your credit card statements regularly, checking for errors and discrepancies, and keeping an eye out for identity theft. Report any issues to your credit card’s fraud department.

You can also monitor your credit score by using sites like QLCredit.com. It’s free and helps you get a grasp on whether you’re ready to reapply for a home loan or should wait and rebuilt your credit score a little longer.

Other Qualification Factors to Consider

Besides your credit score, there are other qualification factors to consider when you’re applying for a mortgage. These could affect the number of options available to you or the interest rate you receive on the loan.

Down Payment Amount

Like credit score requirements, lenders also require a certain down payment amount depending on the mortgage option you’re applying for. These are typical minimum requirements:

  • Conventional loans: at least 3%
  • FHA loans: at least 3.5%
  • VA and USDA loans: nothing required

If you’re unable to provide the minimum down payment amount and have a low credit score, you might have a hard time being approved for a home loan.

If you don’t have the cash for a large down payment on hand, look for assets that you can liquidate without taking large losses. For example, your retirement account could be a source of cash for your down payment.

Another way to fund your down payment is with gift money from relatives. However, the amount of gift money you use can actually affect the mortgage type for which you qualify. Learn more about how using gift money impacts your loan approval with our guide to using gift money for your down payment.

You can also take this course to learn how to save up for a down payment in 180 days.

DTI Ratio

Your DTI ratio measures your ability to make payments toward money you’ve borrowed based on your total minimum monthly debt divided by your gross monthly income. Your lender will consider car loans, student loans, credit card debt, home equity loans, mortgages and any other reoccurring debt to calculate this percentage.

Most lenders will consider a DTI less than 50% as acceptable when qualifying you for a mortgage, but the lower your DTI, the more loan options will be made available to you.

There are some options that can help you work around your DTI ratio. For an FHA or VA mortgage, if you have a credit score in the 600s, your lender might excuse a higher DTI amount. Other than that, working on paying off your debts is a good way to lower your DTI and get approved for a mortgage.

Knowing what lenders look for is one of the top things first-time home buyers need to know before applying for a loan. Although these guidelines apply for Quicken Loans, it’s important to note that each lender might have different standards for qualification.

If you’ve read this article, examined your financial situation and are ready to take the plunge into homeownership, you can do so online with Rocket Mortgage® by Quicken Loans® or chat with one of our Home Loan Experts at (800) 785-4788. If you still have questions, you can let us know in the comments below.

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This Post Has 97 Comments

  1. I highly recommend SWIFTHACKGENIUS (AT GMAIL DOT COM) for your credit repair, You can contact him and he will assist You

  2. Hi,

    My credit score is 690,i make 65k, and would like to put 40k as a down payment ,how much is the probability for me getting a conventional loan and if yes,how much of interest rate do you think is considered to be good on this loan?

    1. Hi Suny:

      I can’t comment on your chances for approval here on the blog because I’m not a licensed Home Loan Expert. What I can tell you is that it sounds like you have a decent sized income with a sizable down payment and your credit score is just fine. What’s missing here is your debt-to-income (DTI) ratio. DTI measures how much of your monthly income goes toward paying off monthly debt amounts including both revolving and installment debt payments. In order to get a more realistic feel for your approval chances, you can get a preapproval online through Rocket Mortgage or give one of our Home Loan Experts a call at (888) 980-6716. Hope this helps!

      Thanks,
      Kevin Graham

    1. Hi Frans:

      I can certainly offer some tips to help you get where you need to be. The first thing you should do is constantly be aware of your credit. If you’re aware of what’s wrong, it’s easier to work to improve it. Check out our friends at QLCredit. You’ll be able to get your free VantageScore 3.0 credit score and report from TransUnion every two weeks along with personalized tips on how to improve based on the information in the report. This blog post also has some good general tips on how to improve your credit. Finally, once you’ve done all those things, I’m going to recommend you give one of our Home Loan Experts a call at (888) 980-6716. They may be able to help you come up with a plan to get across the finish line.

      Thanks,
      Kevin Graham

    1. Hi Rudy:

      Letters of explanation sometimes help, but you do need to be above the minimum FICO score. One thing to note is if you keep up good habits, your credit score should improve over time.

      Thanks,
      Kevin

  3. Hi my 7bkrpcy was discharged 5/2016. I am in the 600’s now for my credit score and want to use part of my 401k for down payment. I have never had a mortgage before, presently my DTI is around 25%. When will I be able to be approved for a mortgage? Thanks

    1. Hi Courtney:

      We do have one program where we might be able to help you right now. You would also have an FHA option starting two years after the bankruptcy has been discharged. I’m going to recommend you start by speaking with one of our Home Loan Experts. They can be reached at (888) 980-6716 and would be able to walk you through all of your options now and down the line. Thanks for reaching out!

      Kevin Graham

      1. Hi Kevin,

        I saw in your comment that you can help me to get a house with my bad credit .My credit score is almost 530.

        Please can you contact me so that we can talk about that?

        Thank and best regards.

        JOSEPH

        1. Hi Joseph:

          Before we can help you with a mortgage, your credit score needs to be at least 580. With that being said, we do have some resources we can give you. I’m going to recommend you check out this excellent blog post on improving your credit. I’m also going to recommend you check out QLCredit. They’re able to give you your TransUnion VantageScore 3.0 credit score and report every two weeks for free and without impacting your score. The key point here is that you not only see the information on the report, but also tips on how to improve your credit. As a final step, you can then talk to one of our Home Loan Experts who might be able to come up with a plan to get you across the finish line. You can reach us at (888) 980-6716.

          Thanks,
          Kevin

  4. Please help! My credit is very poor. I think it’s like 430 or less. But my husband score is 680 or more. I would like to file for bankruptcy or chapter seven and let him put the home in his name while I build my credit. Is this a good idea? And we really would like to buy a new home and stop renting. Just married!!

    1. Hi Evelyn:

      I’m going to recommend that you and your husband speak with one of our Home Loan Experts before taking any further steps. It might also be advisable to speak with a bankruptcy attorney. What I can tell you is that if you live in a community property state, your credit and debts may affect his ability to get a home depending on what type of loan you’re trying to get. I think the best immediate step for you would be to talk to someone by calling (888) 980-6716. One of our experts can walk through your situation.

      Thanks,
      Kevin Graham

  5. My husband has a score of 584 and I have a 594. We’re looking to buy a mobile home (2006 built) on leased land for $150k with $15k down in California. What are the options we have with gross income of $60k?
    We’re both working on getting derogatory marks off of our credit reports, however we’re hoping to buy as soon as possible to avoid throwing money away on rent anymore!

    1. Hi Annelore:

      Unfortunately, we don’t do any lending on mobile homes. We aren’t really the best lenders to talk to on this. It’s a specialized category and although I can’t recommend any in particular, a Google search will probably help you out.

      Thanks,
      Kevin

  6. I’m trying to figure out if I should try to buy or rent for longer? Have 3 things on my credit, 10k car repo from 2005, 6k arears child support, and a small hospital bill. Credit score is 535 and last year’s income 33k for me and 30k for my girlfriend, with 3 daughters

    1. Hi Jeff:

      I can tell you that your credit score needs to get at least up to 580 before we can help you with an FHA loan. I think your next step would be to get a look at your credit report from our friends at QLCredit. You can pull your credit for free without affecting your score in order to get an idea of where you stand. You’ll also get personalized tips on what you can do to improve your credit based on the information in your report. If you want, you could also speak with one of our Home Loan Experts by calling (888) 980-6716. They may be able to offer tips based on your circumstances.

      Thanks,
      Kevin Graham

    2. If the car repo was from 2005 you can file a dispute with all 3 credit bureau to have it removed. Negative credit are only allowed to be reported to your credit report for a total of 7 years by law. That should have been removed from your report in 2012.

  7. Hello Kevin,

    So my question is my credit score is around a 588 and my husband is at a 660-670 range. We are first time home buyers with a annual income of about 118,900.00. We have about 5-6k to work with do you think we’d qualify?

    Thank you,
    Amber

    1. Hi Amber:

      Based on your credit score, you may qualify for an FHA loan if you both want to be on the loan. There are factors beyond credit and income that go into your qualification including debt-to-income (DTI) ratio. We would have to take a further look at your options to see what the best loan would be for you. I’m going to recommend you talk to one of our Home Loan Experts by filling out this form or calling (888) 980-6716.

      Thanks,
      Kevin Graham

    1. Hi Nico:

      It depends on where you’re at in the process. If the bankruptcy has been discharged or dismissed, you may have some options depending on how long ago the bankruptcy was. If you’re just filing for bankruptcy, you won’t be able to get a loan until after you’re out at the earliest. If you want to talk this over with one of our Home Loan Experts that can give you more information specific to your situation, you can call (888) 980-6716. We’ll be happy to talk to you.

      Thanks,
      Kevin Graham

  8. Hi, im a single mom looking to buy a home. I have 618 credit score and 5,000 saved for a downpayment. I make 25,000 a year. What kinda help can i get?

    1. Hi Elizabeth:

      There are many factors that go into whether or not you qualify for any given mortgage loan option. That being said, based on your credit score, we could take a look at an FHA loan for you and you’re a couple of points from qualifying for a conventional loan credit wise. You could also take a look at homeowner assistance that are offered through the Department of Housing and Urban Development (HUD) for FHA loans. I’m going to make a couple of recommendations:

      You should check out our friends at QLCredit. You’ll be able to get your credit report and score for free without affecting your score. Better yet, it’ll give you personalized tips on how you can improve your score based on the credit report analysis. If you can get up to 620 and sustain it, it’ll enable us to offer you a wider array of loan options.

      You should also talk to one of our Home Loan Experts about your situation and we can see if we have any options that make sense for you. You can reach out to us by filling out this form or calling (888) 980-6716. I hope this helps!

      Thanks,
      Kevin Graham

  9. can i get a loan from quicken loans if i have a foreclosure on my credit? it hasnt been 3 years yet, but my credit is 628. also what is the minimum amount of a loan i can get? i was told for homes banks wont loan anything less than $60,000. i was looking to get a loan somewhere around the 40-50k range

    1. Hi Eddie:

      We can definitely look at your options. We may have a couple of loan programs we can take a look at for you. We don’t have a specific loan minimum although there may be minimums associated with certain loan programs. I’m going to suggest you talk to one of our Home Loan Experts by filling out this form or calling (888) 980-6716.

      Thanks,
      Kevin Graham

    1. Hi Aaron:

      I’m going to recommend you talk to one of our Home Loan Experts by giving us a call at (888) 980-6716. They’ll be able to go over your situation with you and offer some tips on how to build up your credit at the very least. We also have this blog post on building up your credit that you may find helpful. Good luck and hopefully we can get you on the right track soon!

      Thanks,
      Kevin Graham

  10. Hi I have credit of 734 and I make about 45k yr. I don’t have much saved only about 4K and I’m looking for a house. I can use my 401k money but I’d rather not. Will I qualify for FHA and what percent would I need to put down?

    1. Hi Danielle:

      Based on your credit score, you would qualify for both an FHA and a conventional loan. I would take a look at a conventional loan in your case because the minimum down payment for an FHA loan is 3.5% and you can go a little lower with conventional programs. I’m going to recommend you talk to one of our Home Loan Experts by filling out this form or calling (888) 980-6716.

      Thanks,
      Kevin Graham

  11. I have poor credit, and it will be my first time buying a home. I make around between $54,000 and $60,000 a year, is there a way i can get a FHA loan with low credit score?

    1. Hi Paul:

      The minimum credit score we accept on FHA loans is 580. I’m going to recommend that you check out our friends at QLCredit. You can pull your own credit for free without affecting your score and get updates on a monthly basis. Even better than that, they give you advice on how to improve your score.

      If you get your credit up to the point where it qualifies, you should definitely reach out to one of our Home Loan Experts. You can do that by filling out this form or calling (888) 728-4702.

      Thanks,
      Kevin Graham

  12. Im 32 im a law enforcement i make about 41,000 a yr and i want to get a home my credit is about 650 but i have a high credit to debt ratio

    1. Hi Melissa:

      Depending on how poor your credit score is, it could be hard to get a mortgage. You need at least 580 score before we can help you with an FHA loan. I’m going to recommend you talk to our friends at QLCredit. They can give you personalized advice on how to improve your credit based on pulling your credit report for free without affecting your score.

      Thanks,
      Kevin Graham

  13. I have poor credit but everything on my credit report is over 10-15 years old, I’m wanting to see if it’s possible to get a FHA home loan to buy my first home.

    1. Typically, when you get ready to buy a home, you want some accounts on your credit report that are newer. I’m going to recommend you check out our friends at QLCredit. You can check your credit report for free, without affecting your score. You will get personalized tips on how to improve.

    1. Hi Richard:

      If you have poor credit, the good news is it can be worked on. This blog post will give you some general tips on typical issues that can be dealt with. We also have a partner in QLCredit that can give you your credit report and score as well as personalized recommendations on where you can improve.

      Thanks,
      Kevin Graham

  14. I am 36, credit score is around 635, I make $95k/year, but have no savings and really only about $290 of revolving debt (student loans). What are my options for a mortgage? Is a no-money down option available to me?

    1. Hi Kelly:

      The only no down payment options that we offer are through the VA. However, we do offer a 3% down payment option at your current credit score and there’s a 1% down option if you get your credit score up to 680. I hope this gives you an idea of where you stand.

      Thanks,
      Kevin Graham

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