Your first home is closer than you've been told.

The minimum credit score depends on the loan program. Here's what each one requires:

• FHA loans: 580 minimum for the 3.5% down payment program. 500-579 with 10% down. Per HUD Handbook 4000.1 , the official policy handbook for FHA-insured mortgages.
• Fannie Mae HomeReady (conventional): 620 minimum per Fannie Mae's HomeReady program guidelines .
• Freddie Mac Home Possible (conventional): 660 minimum for single-family fixed-rate loans.
• VA loans: No official minimum from the VA itself, though most lenders set their own floor at 580-620.
• USDA loans: 640 is the typical lender floor for rural property loans.

The honest answer to “what credit score do I need”: 620 gets you into the most programs available to first-time buyers. 580 gets you into FHA. Below 500 disqualifies you from FHA entirely.

What credit score actually changes: your interest rate and your mortgage insurance premium. A 740 credit score gets a meaningfully lower rate than a 620, and that difference compounds across a 30-year mortgage into real money. But the threshold for qualifying and the threshold for optimizing are very different numbers.

If your score is below 620, working with a lender on a credit improvement plan for a few months is often worth it. If your score is above 620, you're already qualified — the question is which loan program fits your situation best.

Your debt-to-income ratio (DTI) is the percentage of your gross monthly income that goes toward fixed monthly debt payments. Lenders use it as the single most important measure of whether you can afford a mortgage — more important than credit score, more important than income alone, more important than the size of your down payment.

The calculation:

DTI is calculated by adding up your total monthly debt obligations and dividing by your gross monthly income (income before taxes).

What counts as monthly debt:

• The proposed mortgage payment on the home you want to buy (principal + interest + property taxes + homeowner's insurance + mortgage insurance, often called PITI)
• Student loan payments
• Car loan or lease payments
• Minimum required credit card payments
• Personal loans
• Child support or alimony obligations

What does NOT count:

• Monthly utilities (electric, water, gas)
• Phone and internet bills
• Groceries
• Streaming subscriptions
• Health insurance premiums (unless deducted pre-tax from wages)
• Rent you're currently paying (it's replaced by the proposed mortgage)

The DTI thresholds that matter:

• Up to 43% is the historical “Qualified Mortgage” threshold — the upper limit set by the Consumer Financial Protection Bureau's original Ability-to-Repay rule . This was the federal standard from 2014 to 2021.
• The 43% cap was eliminated in 2021. The CFPB replaced the 43% DTI requirement with price-based thresholds , meaning loans with higher DTIs can now qualify as Qualified Mortgages.
• Today, most lenders work in the 45-50% range for conventional loans, with some going higher for borrowers with strong compensating factors (high credit scores, significant reserves, large down payments).
• FHA loans can go up to 56.99% DTI with manual underwriting and compensating factors, though most automated approvals fall below 50%.

What this means for you:

If your gross monthly income is $7,000 and your existing debts (student loan, car payment, credit card minimums) total $800/month, you have $800 already committed — that's 11.4% of your income before any mortgage. You have roughly 35-40% of your income (about $2,400-$2,800/month) available for a mortgage payment under typical conventional lending standards.

That $2,400-$2,800/month covers principal, interest, taxes, insurance, and PMI — not just the mortgage by itself. Working backward from that monthly cap tells you what home price you can actually afford.

Two practical implications:

• Lowering your DTI before applying helps more than almost any other action. Paying down a credit card balance, paying off a car loan, or refinancing student loans to lower the monthly payment can move you into a stronger qualifying range — sometimes within a few months.
• Existing debt eats into your buying power dollar-for-dollar. A $400/month car payment costs you roughly $80,000 in home buying power at typical interest rates. Worth thinking about before financing a new vehicle when you're planning to buy a home within 12-18 months.

Both are mortgages. The difference is who insures them and what the eligibility looks like.

FHA loans are insured by the Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development. The FHA doesn't lend the money directly — it insures the loan against borrower default, which lets approved lenders offer the loan with more flexible terms than they could otherwise.

Per HUD Handbook 4000.1 , FHA loans require:

• 3.5% down with a credit score of 580+
• Two types of mortgage insurance: an upfront premium (1.75% of the loan amount, typically rolled into the loan) and an annual premium paid monthly (currently 0.55% for most borrowers)
• The mortgage insurance stays for the life of the loan in most cases (it cannot be canceled by reaching 20% equity, unlike conventional PMI)

Conventional loans are not government-insured. They follow guidelines set by Fannie Mae or Freddie Mac (the government-sponsored enterprises that buy and securitize most conventional mortgages).

Per Fannie Mae's HomeReady program guidelines , conventional loans for first-time buyers require:

• As little as 3% down (HomeReady or Home Possible programs)
• A credit score of 620+ (HomeReady) or 660+ (Home Possible single-family)
• Private mortgage insurance (PMI) only when the down payment is less than 20% — and the PMI can be canceled once you've built enough equity (more on that below)

The practical comparison:

Which one fits you depends on three things: your credit score, your income relative to area median, and how long you plan to stay in the home. FHA is more forgiving on credit but locks in mortgage insurance for the life of the loan. Conventional has tighter credit and income requirements but offers a path off mortgage insurance once you've built equity.

A lender can run both scenarios side-by-side for your specific numbers and show you the actual cost difference.

PMI stands for Private Mortgage Insurance. It's insurance that protects the lender (not you) against the risk that you default on the loan. It's required on conventional loans whenever your down payment is less than 20% of the home's purchase price.

PMI is typically paid as part of your monthly mortgage payment. The cost varies based on your credit score and how much you put down, but for a typical first-time buyer it runs roughly 0.5% to 1.5% of the loan amount per year, paid monthly. On a $300,000 loan, that's $125 to $375 per month.

When PMI goes away on conventional loans:

Federal law (the Homeowners Protection Act of 1998 ) requires lenders to automatically terminate PMI when your loan balance reaches 78% of the home's original purchase price, assuming you're current on payments. This is the automatic termination point.

You can also request PMI cancellation earlier — at 80% loan-to-value — by sending a written request to your lender. You'll typically need to:

• Be current on payments
• Have a good payment history
• Provide an appraisal (sometimes at your cost) showing the home's current value supports the 80% threshold

If your home has appreciated significantly since you bought it, you may reach the 80% LTV threshold faster than you think — not just from paying down the loan, but from the home's value increasing.

A note on FHA mortgage insurance:

FHA loans charge mortgage insurance differently. On most FHA loans originated after June 2013, the mortgage insurance premium (MIP) cannot be canceled by reaching 20% equity — it stays for the life of the loan unless you refinance into a conventional loan. This is one of the structural differences between FHA and conventional financing that affects long-term cost.

The practical takeaway:

PMI is not a penalty for buying with less than 20% down. It's a temporary cost that goes away as you build equity — and the math on “wait years to save 20% vs. start building equity now and pay PMI for a few years” usually favors starting now, especially when rents are rising and home prices are appreciating.

Closing costs are the fees paid at the closing table beyond the down payment itself. They typically run 3% to 5% of the home's purchase price for most first-time buyers, though the exact total depends on the loan type, the home's location, and the purchase terms.

What's included in closing costs:

Per the Consumer Financial Protection Bureau's Loan Estimate guidance , your lender is required to provide a Loan Estimate within three business days of your mortgage application that lists every closing cost. The major categories:

• Lender fees: Origination fee, application fee, underwriting fee, credit report fee. Typically $1,000-$3,000 total.
• Third-party fees: Appraisal ($400-$600), home inspection ($400-$700), title search and title insurance ($1,000-$3,000), survey if required ($300-$600), attorney fees in NJ ($800-$1,500 if you use one).
• Government fees: Recording fees, transfer taxes. In Pennsylvania, the state realty transfer tax is 1% (split between buyer and seller typically). Most municipalities add local transfer taxes on top, with Philadelphia being notably high (combined 4.578%, typically split 50/50 between buyer and seller).
• Prepaid items: Homeowner's insurance premium for the first year (paid at closing), property tax escrow (2-3 months typically), mortgage interest from closing date to the end of the month, and a few months of homeowner's insurance in escrow.
• PMI or MIP: If applicable, paid upfront or rolled into the loan depending on the program.

Practical examples for a $350,000 home:

• In suburban Pennsylvania: Closing costs typically $11,000-$15,000 (3.1% to 4.3% of purchase price)
• In Philadelphia: Closing costs typically $18,000-$22,000 due to the higher transfer tax (5.1% to 6.3% of purchase price)
• In South Jersey: Closing costs typically $12,000-$17,000 (3.4% to 4.9% of purchase price)

What can reduce your closing cost burden:

• Seller concessions. Sellers can contribute toward your closing costs as part of the offer negotiation. Limits vary by loan type — FHA allows up to 6% seller concessions, conventional up to 3-9% depending on down payment, VA up to 4%. Seller concessions are part of the broader negotiation that buyer representation handles — see our buyer representation page for how the negotiation works in practice and what's involved in structuring an offer that includes them.
• Lender credits. A lender can offer credits toward your closing costs in exchange for a slightly higher interest rate. Worth running the math on whether it makes sense for your situation.
• Down payment assistance programs. Both NJHMFA and PHFA assistance programs can be used toward closing costs, not just the down payment.

The Loan Estimate your lender provides will give you the exact numbers for your specific purchase. We help you read it and understand which items are negotiable.