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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 Rocket HQ. 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 98 Comments

  1. I am 27 years old with low income and a credit score of 581. I am looking to buy a house in the next 2-4 months and I am just trying to figure out if I even have a chance. I have a 3 year old so I want him to have the best. And I have worked hard to get where I am at. Please Help!!!! Also my boyfriend would be moving in with me and he would be helping pay bills and the mortgage. I’m just trying to figure out my options.

    1. Hi Sabrina:

      Assuming you’re right about your current credit score, you qualify for an FHA loan right now, but you have to maintain that and even push it a little higher if you can because the minimum score for FHA is 580. One thing you could consider is putting your boyfriend on the loan with you if he has good credit. If he’s going to be contributing to the mortgage, having his income considered during the qualification process would not only lower your potential debt to income ratio, but it could also help you afford a better house. I’m going to some just you get in touch with one of our Home Loan Experts by filling out this form or calling (888) 728-4702.

      Thanks,
      Kevin Graham

  2. My husband and I are looking to buy our first home in 4-6 months. Home costing $45,000. We will have $3000-$4000 of it. But my credit score is 640 and his is 570. What are our chances of being approved for a mortgage loan?

    1. Hi Amanda:

      If you’re right about your credit scores, you’re in decent shape, but his could be higher. That being said, credit is something that can be worked on. My advice would be to reach out to one of our Home Loan Experts and go over your situation in detail to see if they can offer any personalized tips. You can get in touch with someone by filling out this form or calling 888-728-4702.

      Thanks,
      Kevin Graham

  3. My fiancé and I are trying to buy our first house together. We both have bad credit, and low income. I have lots of student loans but I’m paying them back currently. My credit score is around 550, his is not much better. Is there anything we can do?

    1. Hi Ivory:

      The minimum credit score for an FHA loan would be 580. My advice would be to maybe talk to one of our Home Loan Experts about your situation so they can give you personalized advice. You can get in contact with them by filling out this form or calling 888-728-4702. This blog post also has more credit tips. I hope this helps!

      Thanks,
      Kevin Graham

    2. Here are a few suggestions: Go to a first time buyers program that will help u with credit repair and enhancement. Do your own research on how to repair your credit. Submit “pay to delete” letters to your creditors.

  4. Hi
    I have credit score of 600 and my wife is 750. We both have low income on the book with two young kids. How do I go about getting mortgage ?

    1. Hi Nick:

      Based on your credit score, we may have some options for you. It’s true that a big part of the amount you’re approved for is based on your income, but it won’t hurt you to look at your options. If you take a look at Rocket Mortgage, you can quickly see how much you would qualify for and decide if you want to move forward from there. Hope this helps!

      Thanks,
      Kevin Graham

  5. I’m 32 yrs old. I make $19.80/Hr. 40hrs a wk. I have a bankruptcy stamp from 2011.. my credit is 703 coming from a 480. I have 1 loan from credit union about. $7000. Student loan amount $6000 . $2000 medical bill. No CC debt all balances are zero. No car note just insurance. Total Monthly bills are about $550/$600. Everyone keeps telling me I don’t make enough money to buy a home alone and my interest rate will be through the roof. I’m already scared to death to make this leap alone but now I’m thinking.. can I actually do it and not be house poor. Or flat of extra poor! First time home buyer.. live in NJ. Want 1 maybe 2 fam home . Perfer 1fam. Have 2 kids so need 3-4 bedrooms 2+ bathrooms. There has to be someone out there that can relate and offer some guidance. I needed to know about hidden cost and someone to be real about what needs to come from my pocket.. I don’t want to put a down payment but I can do the 3.5% FHA. Then I have no idea what cost is associated with closing costs and inspection etc… HELP!!!!

    1. Hi Ms. Bell:

      We can definitely help you look into your options. We would absolutely be honest with you about costs. You would probably have to put down a down payment, but we can look into how much would be needed. If you fill out this form, I can have one of our licensed mortgage bankers contact you. Thanks for thinking of us!

      Kevin Graham

  6. My fiancé and i are trying to figure out how we can get approved for a first time home buyers loan but my credit is only a 578 and his is a 524 i believe but he doesnt have any derogatory marks on his as i do. Do we have a chance ?

    1. Hi Sam:

      The minimum credit score to get an FHA loan is 580. This blog post has some great tips for building your score up. The good news is credit is something that can be worked on and with a little time, you can start to see real results. I hope this helps.

      Thanks,
      Kevin Graham

  7. We recently applied for a FHA backed loan. Told his hands credit is at 640. There is about $1200 we need to pay off on credit that are all medical and one bill we are fighting. They said once those are taken care of we would qualify for a $60000 loan. However this could take almost a year and a half for it to happen. Are there other options for us for low down payment or no down payment. We are already working on paying the $1200 off. He is the only one with credit as I have none. Hey suggested I got a credit card but prefer not to be buried under another bill. It makes no sense. We currently pay $850 in rent. No car payments, loans, and only 2 small amount credit cards. Never late in payments on them. Feeling discouraged.

    1. Hi Elizabeth:

      We do have some low down payment options we could take a look at with you. It’s best if you talk to one of our licensed mortgage bankers. Every situation is different. If you send us an email at Michelle@Quickenloans.com with your full names, preferred phone numbers and the state in which you are looking to buy, we can put you in contact with one of our home loan experts.

      In the meantime, it doesn’t hurt to establish credit for yourself. My advice is to take out a credit card in your name and look at it as you would a debit card acting as if the money is coming out of your account immediately. That way, you are only buying what you can afford and paying it off every month. You don’t get stuck under another bill.

      We look forward to hearing from you.

      Thanks,
      Kevin Graham

  8. we are thinking about to buying house instead of paying rent every month. but we have poor credit.I have stable job at VA. can we qualified for loan? This will be our first home? I really don’t have any idea about process for purchase of house.

    1. Hi Patrick:

      Poor credit could be an issue, but that’s something you can work at bringing back in line. I’m going to have someone reach out to you regarding how the home loan process works in general and we can go over any options you may have. In the meantime, here’s a blog post on building your credit back up.

      Thanks,
      Kevin Graham

  9. My husband has a credit of 700 last time we checked. My score is 648. We make about $5324 a month and have a $367 and $282 car payment a month. Our other debt is about $442 a month. Living with relatives and we’re trying to buy a house, but keep getting turned away. Been rebuilding our credit for a year now. No down payment. Any suggestions?

    1. Hi Holly:

      There are very few loan programs that allow you to get a loan without a down payment, but we have several low down payment options and would be happy to help you look into them. Someone will be reaching out.

      Thanks,
      Kevin Graham

  10. Wife and I really need to figure this out – Both of us I believe are right around 600 or so. Renting is putting us in a further hole than it needs to be. We’re currently renting a house and paying 1490/month in rent alone! Meanwhile most peoples mortgages are substantially less. We’d have so much less in monthly bills and lower consumer debt if we weren’t getting all our money ate up with increasing rent each year. We had a bankruptcy we came out of in 2013 and with piling up medical bills for our Newborn I’m scared it’ll happen again if we don’t do something now. I just checked and Credit Karma shows mine as 584 and 609. Wifes is a bit higher. We can’t ever save money due to rising bills, how do people ever get out of this trap? I know if we had a house at least that payment would be stable for years to come and better our situation drastically but it feels hopeless.

    1. Hi Eric:

      Every situation is different, but we may actually have some mortgage options we can go over with you. I’m going to have someone reach out to look further into this.

      Thanks,
      Kevin Graham

  11. Hi, my transunion score is 614 equifax is 628 what are my chances in a loan to purchase my first home with little or no down payment?

    1. Hi Alisha:

      We may have some options for you, but I’m going to have someone reach out to look into this. Thanks for reaching out!

      Kevin Graham

  12. I am a 34 year old man with a fiance and two boys. I also have three other children from a previous relationship and I pay child support on those three. NY child support got behind a lot and has brought my credit score down to about 548 what can I do to begin the process of trying to purchase a home

    1. Hi Christopher:

      The thing to do is to get your credit score up a little bit so that you have some mortgage options. I’m going to have someone reach out to you to go over your situation, but in the meantime, here’s a blog post with some good tips for improving your score.

      Thanks,
      Kevin

  13. My husband and combined income goss about 7000 per year due to mistakes when we were young our credit is not the best, however we have maintian our cc payment and auto loan payment my middle is 584 his is 575 we still have a few hiccups lingering on our credit report can u help us

    1. Hi Nina:

      In terms of a mortgage approval, your credit score sounds like it might be right on the edge. I’m going to have someone reach out and see if there’s any advice we can offer in order to help you take that next step. They’ll be in contact.

      Thanks,
      Kevin Graham

  14. My husband 3 boys and I moved in with my parents 4 years ago to help them now we’ve found the house of our dreams and want to buy but our credit score isn’t our friend right now and we don’t have credit history for the last four years we aren’t havin much luck finding a lender please help we also have a very nice sized down payment

    1. Hi Victoria:

      You’re going to have a difficult time getting an approval without having a credit history in the last four years. My recommendation would be to try to build that up. This article should give you some tips to get started. I’m also going to pass this along to one of our Home Loan Experts who may be able to give you further strategies. If you can get your credit in order, it will help smooth the approval process.

      Thanks,
      Kevin Graham

  15. I am 21 and my fiance’s dad wants to sell his place to us. My credit is very poor due to a truck I lost and it’s the only thing on my credit. I now have a good job and make good money and can afford this place easily. It will be my first time purchasing a home. Is there any chance or what should I do ?

    1. Hi Ryan:

      Based on your credit history, it doesn’t sound like your chances would be great. What I can do for you is have someone reach out and offer some advice to help you get your credit in shape for the future. In the meantime, here’s a blog post with some tips on rebuilding credit. Hope this helps!

      Thanks,
      Kevin Graham

      1. I’m 3o an make 19.29 per hour but credit is bad. How can I try to get a home for me an My son. I have custody of my 4 year old an can’t get any help because how much I make. But his childcare alone is 500 a month.

        1. Hi Brandon:

          Every situation is different, but we can definitely have someone reach out and look into any options you may have or any advice we can give. In the meantime, this post has a bunch of tips for building up your credit.

  16. I have a credit score of 632. I have no credit cards .I’m currently paying off on a car loan monthly 304 for 3 years.
    I have very little money saved up for a down payment for a house. I really need help.Can I qualify for FHA
    My husband and I both have good paying stable jobs.
    My husband has no credit at all. We have 6 children that we really would love to have a home of their own.
    I would really love to stop paying rent we been renting for years paying 600 a month.
    Please help me out with any information how I can move forward.
    Thank you,

    1. Hi Marisol:

      The lack of credit history could be an issue, but every situation is different. You do have some monthly payments that you make. I’m going to have someone reach out and go over this.

      Thanks,
      Kevin Graham

  17. I am a single mother with a poor credit score, maybe 600? I do have negative items on my credit report due to a job loss. I am however working now. Are there any options for me? Thank you in advance!

    1. Hi Nichole:

      Every situation is different, but we’d be happy to help you look into your options. Someone will be reaching out.

      Thanks,
      Kevin Graham

  18. Hello,

    How can I find a lender that will work with me and cleaning up a few dings on my credit while trying to find the best loan option available for me in the long run? The lenders I have spoken to want me to try in 6 months but the home I want to buy is currently on the market.

    Thanks,

    1. Hi Vanessa:

      Every situation is different, but I’m going to have someone reach out and help you look into your options.

      Thanks,
      Kevin Graham

  19. Hello my name is Desmond I’m looking for a home but my credit scores is not very well, I’m currently under 580 fro all 3 both under. Are you able to help me?

    1. Hi Desmond:

      Your credit score has to be a bit higher. I’m going to have someone reach out to you see about options for raising your credit.

      Thanks,
      Kevin Graham

  20. I have extremely poor credit. I have 3 repossessions. Due to job loss. I have some stuff on my credit report that doesn’t belong there at all. I’m homeless and on the streets. So what can I do?

    1. Hi Eugene:

      I’m very sorry to hear about your situation. If you have things on your credit report that don’t accurately reflect your debts and financial profile, you can file disputes online challenging those items with the three credit bureaus. I’m going to list the dispute pages here:

      Equifax
      Experian
      TransUnion

      I’m also going to include this blog post on rebuilding credit. I hope in some small way this has been helpful. Keep your head up. I wish you the best of luck.

      Thanks,
      Kevin Graham

  21. I have a quick question. My score has gone up (!!!) from 540 to 557 in two weeks, I think thanks to opening a line of credit with Finger Hut. I’ll pay on that and then they are supposed to increase my line of credit which I assume would increase my score… We have no credit cards or credit card debt, and just a few things that will fall off over the next or two… no bankruptcy, foreclosure or repos, just a lot of really old stuff. And then we have student loans (and mine are delinquent). If I enter into a repayment plan on my loans will it make a) a big enough push to get to 620 or so and b) an FHA loan possible? How quickly will that happen? We’re renting a very high demand area and think our landlord will want to sell in July as the housing market is hot right now.
    Thanks!

    1. Hi Alicia:

      All of these questions are very dependent on your personal situation and I’m going to have someone reach out to you to determine the best approach to get your credit a little higher so you can start to think about your next move.

      Thanks,
      Kevin Graham

  22. Im looking to buy my first home for me and my wife and kids tired of renting i work a good job and make great money but my credit is poor medical bills is all mainly can i get some advice

    1. Hi Chris:

      If you’re looking to improve your credit, I can have one of our Home Loan Experts reach out and offer advice based on your situation. They’ll be in contact. In the meantime, here’s a blog post with some good advice on building your score back up.

      Thanks,
      Kevin Graham

  23. Hello, I recently inquired at lending network. I received an email from quicker. My family and I are looking into buying our very first home.

    My real credit score was pulled on friday and it was 609 which is up from 488 a year ago. I had some old medical debt on my credit report. No bankruptcy, no foreclosures, and no reposseions. I have bought and paid off several vehicles.

    Currently I have a car loan that I owe $8,400 and it is paid as agreed monthly. The loan is almost 2 years old. (42 month loan, I have paid 22 months)

    I have 3 credit cards which I maintain a utilization of 30% and pay them off monthly.

    I own my own business and have a yearly salary of $30,000 plus 70% of gross monthly profit in my business. I am also a nurse and work occasionally in nursing still.

    My fiancée is a nurse with a salary of $36,000 per year.

    We currently rent and pay $750 per month. We are comfortable with a mortgage payment up to $900 per month.

    I will have approximately $5,000 for a down payment in 1 month. If we wait for another 6 months to purchase I will have approximately $10,000 to put down.

    Do you think there are any options for us to buy our first home and give our child a forever home?

    1. Hi David:

      it sounds like you’re going about things quite responsibly. We can definitely help you look into an FHA loan right now and you may be able to get a conventional loan by pulling your credit score just a bit of a higher. I’m not sure what your preferred timeline is. I’m going to have a Home Loan Expert reach out and help you go over your options.

      Thanks,
      Kevin Graham

  24. Hello my name is Tom my fiance and I are looking for a home but our credit scores are not very well they’re both under 600 we have a baby and we’re not watching it for an apartment we figured that paying an apartment we will never be out of safe for a house you would like something upto single-family home not attached with the yard looking for 2 to 3 bedrooms and 800 or less a month where are options we have no cosigner have very money little money down

    1. Hi Thomas:

      Congratulations on the baby! Based on the information you provided above, you may qualify for an FHA loan. You would have more options if your credit score was slightly higher, but we may be able to work on that with you based on your goals. I’m going to have a Home Loan Expert reach out and help you go over your options.

      Thanks,
      Kevin Graham

  25. My husband and I are first time home buyers. We are Veterens will fair/poor credit. I am looking for programs that will help our family get into a home hopefully next year.

    1. Hi Kianna-

      We can put you in touch with a Home Loan Expert that can look into your situation and see if there’s a loan program that’s right for you. In the meantime, here’s a blog post on strengthening your credit.

      Hope this helps,
      Kevin Graham

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