House Keys on a Cash Loan for First Time Buyers

Mortgage Lending for First Time Buyers

Are you tired of living in your apartment and you are looking for more space? Are you looking to become a homeowner, but you aren’t sure where to even start? Well, you came to the right article!

Mortgage lending isn’t as intimidating as it sounds, and we are here to help you. This article will go over the different types of loans and programs available to first-time buyers and where you can go to get started on your loan!

First-Time Homebuyer Programs

Many different programs help first-time buyers buy their homes, such as down payment assistance. You will be given this money to help cover your down payment if you cannot pay it on your own. Down payment assistance, also known as DPA, can be in grants or bonds.

DPA grants do not need to be repaid, and they are available from your local or state government programs. Typically, DPA bonds do have to be repaid if the home is sold or refinanced within a certain timeframe. However, outside of that timeframe, the bond will be forgiven.

Closing Assistance

Similar to down payment assistance, you can also qualify for financing options such as closing assistance. If you do not have enough to cover your closing costs, you can obtain a closing assistance loan or grant.

Closing costs average between 3%-6% of your home loan, and they are paid at the end of your mortgage lending process. If you cannot obtain a closing assistance loan or grant, you can also reach out to the seller to see if they will help with closing costs.

Federal Homebuyer Programs

Not everyone qualifies for government-backed loans, but they are worth researching. Each federal loan comes with specific requirements that not everyone will meet; for example, low-income people may be more eligible than someone who isn’t. Federal programs are open to any legal resident or citizen of the United States.

USDA Loan

USDA loans are government-backed loans that make it easier to purchase a home for those who live in more rural areas. These loans are backed by the U.S. Department of Agriculture and offer lower interest rates. If you are approved for a USDA loan, you will be able to purchase real estate with no down payment.

Good Neighbor Next Door

If you are a teacher, law enforcement officer, EMT, or firefighter, you can take advantage of the good neighbor next door program. This program is sponsored by the Department of Housing and Urban Development, also known as HUD. There are select HUD properties that you can receive for a massive 50% discount.

FHA Loans for First-Time Buyers

FHA loans are outstanding for borrowers with credit issues and only have a small amount of their down payment. These loans allow borrowers to put down 3.5% as long as they have a credit score of 580. If your credit score is below a 580 credit score, you can still qualify for an FHA loan.

The minimum credit score allowed is a 500 credit score, but you will be required to put down 10%. The house you are purchasing with the FHA loan must be your primary residence. You cannot use an FHA loan to buy a vacation home or an investment property.

Conventional Loans

Conventional loans are the best for borrowers with good credit and at least a 10% down payment. The average credit score needed to obtain a conventional loan is 620.

If you have a score of around 740 or higher, you can expect to have a lower down payment and a great rate. Your debt to income ratio plays a huge factor in conventional loans as most lenders want to see it under 36%.

Homebuyer Education

As a new homeowner, it is crucial to know the different terms and steps of obtaining a mortgage before starting the home buying process.

These courses teach you about the entire buying process, applying for a mortgage, and different loan options. For specific programs, such as the USDA loan, you may be required to take a home buying class to show that you are familiar with the process.

Private Mortgage Insurance

Although there are home loans that only require putting a small down payment on the property, you may be subject to Private Mortgage Insurance. Private Mortgage Insurance, also known as PMI, protects the lender if you default on your mortgage.

PMI typically costs about 1% of your annual mortgage and is generally included in your monthly payment. If you don’t want to pay for PMI, you can put down 20% when purchasing your home.

Credit Score

Along with your income, your credit score is a major defining factor in whether you get approved for a loan or not. You can receive a free credit report from each of the three main reporting bureaus every year.

It would be a great idea to review your credit history before you even consider applying for a home loan. When you have a solid credit score with on-time payments and little to no debt, you show the lender that you can handle a mortgage.

Once you start the homebuying process, it is best not to make any big purchases. Even if your credit score is good and you make enough to purchase that new car, try to hold off until after you close on your home purchase. Making any big purchases could jeopardize you getting into your dream home.

Qualifying for First-Time Buyers

Each program is unique in determining if you qualify, so it is essential to speak with a reputable lender to get more information. Usually, if you have not owned any home in the last three years, you are a first-time buyer. For loans such as FHA or USDA, your house will have to meet specific criteria before you qualify.

Mortgage Lending for First-Time Buyers

If you don’t do your research before starting your home buying process, you may find yourself lost and confused. Mortgages are not one-size-fits because everyone has different needs and financial circumstances.

Once you know which type of loan you want to apply for, contact us now. Our team is knowledgeable in mortgage lending, and we will be able to answer any questions about the first-time buyer’s process.

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