First-Time Home Buyer Mortgages

Buying your first home involves many important decisions, from finding the right property to selecting financing. First-time homebuyers can take advantage of special mortgage programs that offer lower down payment requirements and more flexible credit standards.

Some programs are supported by federal agencies and they’re available to residents who meet income and other qualifications. If you are unsure of what to do, contact Steve Wilcox W/Primary Residential Mortgage, Inc.

mortgageHousing Administration Loans

There are housing administration loans and the government backs these mortgages. This allows borrowers to borrow against the value of the home with a low down payment. Housing administration loans are an excellent option for first-time buyers, people with lower credit scores who have re-established their financial stability, and other borrowers who struggle to qualify for conventional loan programs.

The minimum housing administration down payment is 3.5% of the purchase price of the home. Borrowers can use their funds, gifts, or a combination of both to meet this requirement. The minimum credit score is 580. This is much lower than what is required for most other loan types. This also enables borrowers to have a higher debt-to-income ratio (DTI) than what is allowed with conventional loans.

Another benefit of housing administration mortgages is that they allow borrowers to finance closing costs. This is often a challenge for new home buyers who may not have a lot of cash saved. Closing costs can be 3% to 6% of the purchase price. Housing administration loans make it possible for borrowers to negotiate with sellers to cover these fees, which makes it easier to buy a home.

Other benefits of a housing administration mortgage include a shorter bankruptcy waiting period than conventional loans and more flexible lending rules. For example, borrowers who have been discharged from a Chapter 7 bankruptcy can qualify for a housing administration loan after just two years, while those who have completed a Chapter 13 repayment plan can qualify after making 12 payments.

Although a housing administration mortgage requires a low down payment and less stringent credit requirements, it’s important to shop around for the best rate. Interest rates are currently near record lows, and the lowest mortgage rates typically come from smaller lenders who specialize in this type of financing. To find the best rate, borrowers should compare quotes from multiple lenders and share all relevant documents with their chosen mortgage lender, including pay stubs, W2s, federal tax returns, and bank statements. The most competitive mortgage rates can save first-time buyers thousands over the life of their loan.

Conventional Loans

When purchasing a home for the first time, conventional loans are another option that can offer first-time buyers better mortgage interest rates, lower down payment requirements, and other upsides like down payment and closing cost assistance. Conventional mortgages are not backed by the government, meaning that lenders must assess your credit history and income to ensure you can pay back the loan. This is usually more rigorous than when using a government-backed loan. Conventional loan guidelines typically require a minimum credit score of 620 and may include the requirement that you purchase private mortgage insurance.

Conventional mortgages are grouped into conforming and non-conforming categories based on the size of the loan. Conforming mortgages follow guidelines set by the federally-created mortgage financing corporations. These groups bundle the mortgages and sell them in pools to investors in the form of shares (similar to stock). Conventional loans that exceed the conforming limits are called jumbo mortgages.

If you are a first-time home buyer with good credit and sufficient income, you can usually qualify for a conforming conventional loan. For borrowers with poorer credit, the process is often more difficult, since the lender must assess your ability to repay the loan and evaluate the financial risks. Those with major red flags in their financial history, such as bankruptcy or foreclosure, may not qualify for conventional loans unless they can compensate by offering substantial down payments and showing strong income.

Other advantages of conventional mortgages are the flexible repayment timelines, which range from eight to 30 years. Also, since these loans are not backed by the government, fewer third parties must review and approve the mortgage. This can reduce the amount of paperwork and allow you to close on your new home more quickly. If you are ready to get started with a conventional mortgage, you can begin the process by getting a mortgage pre-approval. This only takes a few minutes and doesn’t impact your credit score. It’s a great way to find out what you can afford.

Student Loan Assistance

If you’re a first-time home buyer with student loan debt, there are mortgage loan programs that could help. These programs typically offer more flexible borrower-credit guidelines and debt-to-income ratios than standard loans, which can be a big help for those who have student loan payments in their budget. Many of these programs also have down payment assistance, which can help buyers who may otherwise struggle to afford a home purchase.

Some state mortgage agencies offer a program that is designed for those who have student loan debt but don’t meet conventional loan guidelines. You can get this type of mortgage by finding a lender on the list, and you’ll need to meet income and homebuyer education requirements. You can also access other first-time homeowner assistance programs that can include help with the down payment, closing costs, and more.

This program can help you buy a single-family home, condominium, or cooperative with as little as 3% down and only 1% from your funds. You must meet income requirements and attend a homebuyer education class to qualify. And like most other first-time homebuyer programs, it includes an interest rate that’s lower than a traditional 30-year fixed mortgage.

Other loan programs require at least a 620 credit score and a 3 percent down payment. These loans also come with private mortgage insurance, which you’ll have to pay on your monthly mortgage payments. You can have this premium waived when you build enough equity in your home.

Some people, such as military members and teachers, have careers that allow them to build good financial history over time, making it easier for them to secure a mortgage than others. But other borrowers may have financial histories that aren’t as stable or predictable, such as those who have overcome bankruptcy or foreclosure, or those who rely on family or community support for income. This is where loan programs can be helpful, and they often have more flexible credit reviews and debt-to-income ratios than other types of loans.

Down Payment Assistance

Most first-time home buyers need help with the down payment, and this is where many programs come into play. Programs vary at the federal, state, local, and private levels and typically offer loans or grants to help make homeownership more affordable for first-time home buyers with lower-than-average incomes. They also often have specific requirements such as requiring borrowers to take a homebuyer education course, meeting certain income limits, or residing in designated areas.

Some government loan programs allow borrowers with credit scores as low as 500 to qualify for a mortgage with just 3.5% down. These loans are insured by the government, which reduces the lender’s risk and makes mortgages more readily available to borrowers with less-than-perfect credit. Private mortgage insurers also offer first-time home buyer programs that combine a traditional 30-year fixed-rate mortgage with down payment assistance funds, helping to ease the burden of the initial purchase on the borrower.

Other government programs are geared toward the unique needs of first-time homebuyers. The program offers mortgages for one- and two-family homes with reduced interest rates and a down payment of just 3%, plus down payment and closing cost assistance. It also has more flexible guidelines than other mortgages, which allows for borrowers with past financial challenges to be approved and those who may rely on family or community support for finances.

At the state level, the mortgage agency oversees multiple first-time homebuyer programs, including other mortgage programs and down payment assistance. This 30-year loan features reduced interest rates and down payments of as little as 3%, credit review is more flexible and nonoccupant co-buyers can pitch in on the mortgage.

Mortgage agency also provides the home-ready program, which combines a conventional mortgage with up to 3% down and assists with closing costs for borrowers who meet income limitations. Similarly, a mortgage company offers a similar option for buyers who meet credit and income requirements in designated census tracts.