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Which Loan Options Are Strongly Recommended For First Time Buyers

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Are You A Community Service Professional

Which is the best mortgage for a first-time buyer? | Mortgages Explained

It’s a widely held belief that community service professionals should be able to live in the communities they serve. So youll find a variety of programs aimed at helping police officers, firefighters, teachers, health care workers, and social workers get into homes. Here are just two:

Everyday Hero Housing Assistance Fund. Denver-based EHHAF offers gift funds that cover closing costs to community service workers in all 50 states. Thats right, gift. The goal is to keep your out-of-pocket costs to a minimum. Learn more at

Good Neighbor Next Door. This HUD program gives a range of community service professionals a 50 percent discount on certain properties in revitalization areas. The down payment is only $100 if you qualify for any FHA-insured mortgage program. Learn more at the HUD website.

Borrowing From Retirement & Life Insurance

Those with retirement funds or life insurance plans may be eligible to borrow from their accounts. This option has the benefit that you are borrowing from yourself, making repayment much easier and less stressful. However, in some cases, failing to repay such a loan can result in severe tax consequences.

Learn more about retirement accounts.

Honorable Mentions: Va And Usda Loans

The conventional mortgages and FHA loans are the two heavyweight contenders when it comes to financing options for your first home. However, there are a couple other options that you should at least be aware of in case you may qualify:

1) USDA loans

This program from the United States Department of Agriculture helps homebuyers purchase in approved rural areas. No down payment is required. However, there are restrictions. First, you can only buy under this program in a USDA-approved area. Second, there are also income restrictions, meaning if you make too much money you will not qualify. The credit score requirements are not stringent, making this a potentially solid option for homebuyers looking for homes in rural areas.

2)VA Loans

These loans are backed by the Department of Veterans Affairs and available to active duty military, veterans, and some military spouses. No down payment is required. Borrowers must pay a funding fee, though it can be rolled into the mortgage.

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Your City Or State Might Help Out

There are all kinds of community and state programs that help with down payments and other upfront costs, including closing costs. Some cities offer financial incentives to buy a home within their boundaries, often in a designated redevelopment neighborhood. Chicago, Boston, Los Angeles, and Seattle are just a few of the major cities that have homebuyer assistance programs.

Types Of Credit Options

Which Of These Loan Options Is Strongly Recommended For ...

The two major categories for consumer credit are open-end and closed-end credit. Open-end credit, better known as revolving credit, can be used repeatedly for purchases that will be paid back monthly. Paying the full amount due every month is not required, but interest will be added to any unpaid balance.

The most common form of revolving credit is credit cards, but home equity lines of credit also fall in this category.

Credit card holders incur interest charges when the monthly balance is not paid in full. The interest rates on credit cards average 16%, but can be as high as 30% or more, depending on the consumers payment history and credit score. Loans for bad credit may be hard to find, but lower interest rates are available through nonprofit debt management programs, and credit scores are not a factor.

Closed-end credit is used to finance a specific purpose for a specific period of time. They also are called installment loans because consumers are required to follow a regular payment schedule that includes interest charges, until the principal is paid off.

The interest rate for installment loans varies by lender and is tied closely to the consumers . The best interest rates go to borrowers with credit scores of 740 and higher. Interest rates go up as credit scores go down.

The lending institution can seize the consumers property as compensation if the consumer defaults on the loan.

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Whats The Best Firsttime Home Buyer Loan

When youre a firsttime home buyer, youre looking for any way to lower the bar and get your foot in the door.

Maybe that means a mortgage option with a lower down payment, or one with less stringent credit score or income standards.

Programs like the FHA, VA, or Conventional 97 loan can help. But theres no onesizefitsall mortgage. So be sure to explore all your options.

Whatever your unique situation calls for, theres likely a firsttime home buyer loan that can help.

The Cons Of Bank Of America:

  • No USDA loans, home equity loans, reverse mortgages, or construction loans
  • Doesn’t accept alternative forms of credit

The bottom line:Chase is a strong mortgage lender overall, especially if your income is low enough to qualify for the DreaMaker mortgage. You’ll need a decent credit score to qualify, though.

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Spending Your Entire Budget

When a lender provides a pre-approval or pre-qualification letter, theyll typically include the maximum amount they will lend you. But just because a lender will let you borrow a certain amount doesnt mean you should spend it.

There are rules lenders follow to determine what you can borrow, such as the 28/36 rule, which says that a homeowner should spend no more than 28 percent of their gross monthly income on housing expenses, and no more than 36 percent on overall debt. But buying a home also comes with significant upfront costs, such as the down payment and closing costs, so youll want to make sure you have savings left for emergencies and other unexpected expenses after you close on your new home.

First Of All You Don’t Need 20 Percent Down

First Time Buyer Mortgage Options | Conventional Mortgage Options | Home Ready and Home Possible

Its great to have a big down payment. The more you put down, the less you need to finance and pay mortgage insurance on, and the smaller your monthly mortgage payment will be.

But in case you havent heard, the traditional 20 percent is no longer the norm. According to Down Payment Resource, the median down payment for first-time homebuyers in 2016 was just 4 percent.

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Freddie Mac Home Possible

Home Possible is similar to Fannie Maes Home ready program in that it offers flexible credit terms to families living in underserved communities with low to moderate incomes. Borrowers can use gifts from family or friends towards the down payment, which ranges between 3 to 5 percent of the homes purchase price.

Generally, Home Possible requires that a borrowers income level be equal to or less than the area median income of the location where he or she is buying, but there are a couple exceptions. No income limit applies for borrowers buying a home in an underserved area this is determined by the areas income level, minority population, and whether or not the location is a designated disaster area. In high cost locations, a borrowers income can be greater than the AMI by a set percentage.

Pros Of Conventional Loans

  • Can be used for a primary home, second home or investment property
  • Overall borrowing costs tend to be lower than other types of mortgages, even if interest rates are slightly higher
  • Can ask your lender to cancel private mortgage insurance once youve reached 20 percent equity, or refinance to remove it
  • Can pay as little as 3 percent down on loans backed by Fannie Mae or Freddie Mac
  • Sellers can contribute to closing costs

Also Check: Fha Refinance Lenders

Best Firsttime Home Buyer Loans Faq

Who is considered a first-time home buyer?

If youre interested in qualifying for a firsttime home buyer loan program, most government and nonprofit programs will consider you a firsttimer if you havent owned a home in the last three years. However, consult with your real estate agent if you have any concerns.

Which is the easiest first-time home buyer loan to get?

The best mortgage loan program will depend on your financial situation. However, for most firsttime buyers, an FHAbacked loan will be easiest to get because its requirements are more lenient, allowing lower credit scores and less strict debttoincome ratios than conventional home loans.

How do I get loan pre-approval?

Your mortgage lender can preapprove you for a home loan based on financial information you provide, including tax returns, W2s, bank statements, pay stubs, a hard pull on your credit report, and your social security details. While preapproval is a more rigorous underwriting process, you can also get prequalified for a home loan which is a general estimate of how much a mortgage lender is willing to offer.

How Do I Choose A Mortgage Broker

Which Of These Loan Options Is Strongly Recommended For ...

When you choose a mortgage broker, be aware he or she may work with the same set of lenders. Inversely, others cast a wider scope. Some lenders dont work with brokers at all, opting to have in-house loan officers. If you want to be thorough, ask your broker this question to see how big their pool is.

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Home Renovation Loan Programs

Here are a few programs that allow you to buy more home for your money.

  • The Energy Efficient Mortgage program extends your borrowing power when you buy a home with energy-saving improvements or upgrade a homes green features. If you qualify for a home loan, you can add the EEM benefit to your regular mortgage. It doesnt require a new appraisal or affect the amount of your down payment. The program simply allows your lender the flexibility to extend loan limits for energy efficiency improvements.

  • There are also FHA 203 loans, designed for buyers who want to tackle a fixer-upper. This special FHA-backed loan considers what the value of the property will be after improvements and allows you to borrow the funds to complete the project as part of your main mortgage.

These loan programs are designed for buyers who want to tackle a fixer-upper.

  • The CHOICERenovation loan is a conventional loan program through Freddie Mac that allows you to finance the purchase of a home and the cost of improvements, too, with low down payments.

  • HomeStyle from Fannie Mae is another conventional loan option for purchase-and-remodel projects. A 3% down payment is available to first-time home buyers.

» MORE: Use our mortgage calculator to find out your monthly mortgage payment.

Is Your Demographic Working For You

Native Americans, people with disabilities, and rural Americans are among the beneficiaries of demographic-based programs.

Indian Home Loan Guarantee Program. This HUD-backed mortgage product is designed for American Indian and Alaska Native families, Alaska villages, tribes, or tribally designated housing entities. It can get you into a home with a low down payment and flexible underwriting. Learn more at the HUD website.

Native American Homeownership Initiative. In more than a dozen states and territories, the Federal Home Loan Bank of Des Moines provides up to $15,000 per eligible household to assist with down payment, closing costs, homeownership counseling, and home repairs associated with the purchase. Learn more at

Programs for disabled homebuyers. A lot of aid for disabled people is directed at rental aid, but homebuyer programs do exist. This Bankrate article offers a partial list. An exciting option if you can wait awhile is Habitat for Humanity, which is known for disability inclusion. Imagine building a home customized to your needs! Start your visit to with this success story.

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What To Know Before Applying For A Mortgage

6 Things to Do Before Applying for a Mortgage

  • Know Your Budget. If you want to qualify for a mortgage on your first try, its important to know how big of a loan you can reasonably afford.
  • Improve Your Debt-to-Income Ratio.
  • Save Up for a Down Payment.
  • Boost Your Credit Score.
  • Get Your Paperwork in Order.

Youll Need Help With Your Research

Best Loan Option for First Time Home Buyers

We recommend that you take advantage of these great options:

A local homeownership advisor. Some programs, especially smaller city or county ones, arent well known. So it pays to talk to a professional whose job it is to keep tabs on these things. You can find a good homeownership advisor near you on our lookup page.

Down Payment Resource. DPRs free online database makes it way easier to find down payment programs and other financial help . They continually monitor more than 2,400 homeownership programs nationwide, along with ever-changing eligibility requirements. To learn more about DPR, start with our interview with CEO Rob Chrane.

Good luck and keep saving. You can do this!

READ NEXT:Do you qualify for down payment assistance?

Ready to take the next step in your homebuying journey with all the confidence of a smart and savvy homebuyer? Our comprehensive online homebuyer course is simple and easy to access on your computer, tablet, and mobile device. It’s all the information you need, all in one place. Go ahead and get started today.

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Fha Loan Benefits For Firsttime Home Buyers

  • Minimum down payment requirement is 3.5%
  • Low interest rates
  • Lowest credit score requirements of any mortgage program

To qualify for a 3.5% down payment, youll need a credit score of at least 580. But if you can put 10% down, your score can be as low as 500.

FHA also provides flexible income guidelines. You dont have to make a lot of money to qualify.

The big downside of FHA loans is that they require mortgage insurance. This comes as both an upfront fee at closing and then an annual mortgage insurance premium, which is spread out across your monthly payments.

But for many, mortgage insurance is a small price to pay to get out of renting and start building home equity.

What Type Of Loan Is Best For A First

An FHA mortgage is often the best mortgage for a first-time buyer. You may qualify with a lower credit score and higher debt-to-income ratio than with other home loans, making FHA mortgages appealing to people whose finances aren’t in the best shape yet.

However, the best loan will depend on your situation. With a high credit score and low DTI ratio, you may find that you’re eligible for competitive terms on a conventional mortgage, which includes both conforming and jumbo mortgages for borrowing larger amounts.

If you are an active military member or veteran, you can buy a home with no down payment with a VA mortgage. A USDA mortgage is also good for buyers who live in rural areas and earn a low-to-moderate income.

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Mortgage Tips To Consider

  • Be clear on your financial status. Choosing the right mortgage is like shopping for anything else. It’s best to get pre-approved before house-hunting so that potential sellers know you’re serious about making an offer. Keep in mind that your current income and credit history will inform the mortgage loan that is best for you. Opt for a reputable mortgage lender that will make the home buying process go as smoothly as possible. Take your time to weigh the pros and cons of all available mortgage options and compare interest rates, so that you know what’s manageable considering your financial situation.
  • Research first-time homebuyer programs. There are many first-time homebuyer programs on both the local and national level that offer down payment and closing cost assistance as well as mortgages with reasonable rates. Requirements vary depending on where you live, but carving out time to research them can result in huge savings.

Finding the perfect mortgage is far from easy, but with patience and enough research under your belt, you can be one step closer to making your dream of becoming a homeowner a reality.

More Tips for Home Buyers

How Do I Qualify As A First

Which Of These Loan Options Is Strongly Recommended For ...

There aren’t any specific requirements that only apply to first-time buyers . For the most part, first-time buyers are subject to the same general requirements that all mortgage applicants face.

Having said that, first-time buyers are less likely to know what to expect than seasoned homeowners. So here are the general categories of information your mortgage lender will consider when you apply for a mortgage for your first home.

Before you apply for a mortgage, it makes sense to ensure each of these are as good as possible. For example, taking some time to raise your credit score and save a higher down payment could help you snag a better interest rate, which will save you money in the long run.

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Consider Other Programs Too

We have discussed some of the most popular mortgage types that may be available to you as a first-time homebuyer. In addition to deciding which loan to apply for, you may also consider homebuyer programs that offer aid to first-time buyers. Here are a few to consider:

  • State programs. Your state may have resources for first-time homebuyers. These could include down payment assistance programs, programs for reduced or waived PMI, and others. Check out this database of state programs maintained by NerdWallet.
  • HUDs Neighbor Next Door Program. This special program from HUD encourages law enforcement officers, firefighters, emergency medical technicians and teachers to purchase homes in revitalization areas by offering a fifty percent discount on the price. See the Neighbor Next Door
  • Home Ready and Home Possible. We already touched on conventional loans allowing for a three percent down payment. But you can read about the formal programs that make that possible, along with new programs that may be on the horizon.

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