First time home buyers with a low credit score can purchase a home. However, it depends on how low the score is. FHA guidelines for first time home buyers allow a credit score as low as 580 with a 3.5% down payment. For those with a lower score down to 500, the guidelines call for a 10% down payment.

However, even though the FHA has these guidelines lenders don’t typically follow them. They may require as high as a 640 credit score to get the 3.5% down payment. The reason lenders require a higher down payment is that the FHA penalizes them for too many bad loans. Therefore lenders are protecting their ability to offer FHA programs long term.

Details of First Time Home Buyer Programs by State

A Summary of First Time Home Buyer Loans and Programs

First Time Home Buyers Low Credit Score - Reasons

More Positive Accounts and Credit History

There’s more than one reason why someone may have a less than 580 credit score. Younger people simply may not have established enough positive credit. They have a clean credit report but not enough on the credit report. This person would be wise to use an FHA loan to purchase a home if they have the income.

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But before doing so and perhaps while saving some down payment money or money for improvements, establish new credit lines. Get a free copy of your credit report from at least one of the 3 major credit reporting agencies. To do that visit See what positive accounts are being reported. Based on what you find make an effort to open 1 or 2 more accounts such as a new credit card. Make sure you keep all revolving accounts (credit cards) balances under 30% of the limit on the card.

Negative Accounts

Some people that have a sub 580 credit score have a lot of negative items on their credit report. They may have just fallen on bad times in the past. This person should go through the process of repairing their credit. This could potentially increase their score and lower the interest rate on your future mortgage.

If you fit into this category, book a phone appointment with us. It's free and there's no obligation. We're here to consult with you. If you decide that restoring your credit would be beneficial we'll certainly help you do that. We'll address your derogatory or negative accounts and see if any are obsolete, inaccurate or if your creditors on those accounts do not verify them. Removing negative accounts before you go through the qualifying process for a mortgage is a smart move.


However, there is a category of people that need to budget themselves first. Diving into a $200,000, give or take, mortgage when they are struggling to pay bills now is not a good move. They need to stabilize their financial situation before taking on further debt. This is true even if their mortgage payment is less than their rent payment. If you don’t pay your mortgage you can lose your home.

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This article which was originally posted in 2020 is updated regularly and was last updated in July 2023.

ERA Credit Services is an Independent Advisor
and does not
provide credit repair services nor accept funds from clients for credit repair services.