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Home » 3 Things to Do When You’re a First Time Homebuyer with Bad Credit

3 Things to Do When You’re a First Time Homebuyer with Bad Credit

Going from wanting to buy a home to buying a home is a huge process. This is especially true when you’re a first-time home buyer with bad credit. Some of the most important parts of buying a home is saving a down payment and getting your credit score up. Most people buy their homes by getting a mortgage, so having a good credit score is important.

So, what options are available for first time home buyers that have a low credit score? There are quite a few routes that you can take.


Gather Information

Taking steps to buy your first home is not possible if you don’t know your options. First, you can start with knowing your credit score. Some people assume that they don’t have a credit score or that it’s very low due to some financial mistakes they made years ago. In addition, some home buyers may think their score is too low when it’s high enough for them to get a mortgage.

There are 3 different scores that the main credit bureaus use. These credit bureaus are called Transunion, Equifax, and Experian. Once you have a clearer view of your credit score, you have an idea of what you can get. For instance, you need at least 620 for a conventional loan. In contrast, you need at least 500 for a FHA loan. That’s a 120 point difference!

Next, you can start taking a look at your goals and the real estate market around you. Although you might be able to take out a mortgage, your rates will be higher. Maybe, it’s better to wait a little longer so you can increase your credit score. Of course, you need to examine your specific situation.


Review Your Credit Report

You thought about waiting, but it isn’t in the cards. One thing that may help you is checking your credit report. A credit report is different from a credit score. A credit report will show what accounts you have open, your balance on any of your accounts, and any companies that pulled your credit in the past few years.

From time to time, these credit bureaus may receive incorrect information about you. Reviewing your free credit reports will let you see any errors. These errors can be costly if they lower your credit score. Every year, you get one free report from each of the three bureaus. It’s recommended to review one of the free reports every four months. This is the perfect opportunity to check for any errors and spot any identity theft.

Some common errors on credit reports to look out for our identity, account status, data management, and balance errors. If you spotted any errors, you should report them. You can report the errors by writing a letter to the credit bureaus. This article on how to dispute an error by the Consumer Financial Protection Bureau goes into more details.


Action Plan

If you’re not happy with your score, then it’s time to come up with a game plan. Rising your score takes time, so it’s better not to feel like you’re in a rush. It helps to have a goal in mind. As mentioned earlier, you need a score of at 620 to a conventional loan and a score of at least 500 to get a FHA loan. So, if you fall under 500, you should have that as your basic goal and maybe 620 as your reach goal. This will probably mean extending your timeline to get a house, so you can improve your credit.

Now, it’s time to get allies on your side. You should also tell your mortgage lender your concerns. Similarly, you should bring up your credit concerns when trying to find the right agent. If you’re talking to an experienced agent, there’s an excellent chance that he/she has seen this situation before. If you decided that you need to give yourself more time to improve your credit, you can get in contact with a HUD housing counselor.



Being a first-time homebuyer with a low credit score might make your home buying goal seem far away. You want to buy a home, but you need the low amount of money and credit score might make it seem impossible. Despite that, it’s very possible for you to buy a home. Take some time and evaluate your situation. Then, see what you can fix such as your errors on your credit report. Lastly, come up with a plan of attack and build a team around you.

Interested in buying a home? You should check out our video seminar on down payment and closing cost assistance program here:

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