First-time home buying is a big decision that can feel overwhelming. But it doesn’t have to be. With a little help and research upfront, you can approach the dream of owning your first home with confidence.
1. What is a first-time home buyer loan?
It’s a special loan for first-time home buyers that offers extra funding options and programs to encourage home buying. First time home buyers might qualify for federally backed loans, special tax breaks with little to no down payment.
2. How do first-time home buyer loans work?
Programs vary based on the state you live in, but there are a variety of options available. Here are a few to consider:
- FHA home loans typically have a lower credit score and income requirement than other conventional loans. However, an FHA loan will likely call for a 3.5% down payment. An FHA loan is a federally-backed loan for single family and multi-family homes – meaning the government has guaranteed to pay these loans to the lender if the borrower is unable to.
- A 30-year fixed rate mortgage allows for the same rate throughout the life of the loan. This choice may be best if you’re looking for a lower monthly payment. This payment term can be applied to conventional, FHA, and other mortgage loans.
- A 5/5 Adjustable-Rate Mortgage With low monthly payments up front, this option allows more flexibility.
- Conventional loans usually have income and down payment requirements set in place.
- VA loans might be a good fit if you have military service. They‘re backed by the Department of Veterans Affairs. These loans are great for veterans with low to moderate incomes who want to make a small down payment and need to finance their closing costs.
Not sure which loan option is right for you? Let a team of experts guide you.
“Being prepared isn’t half the battle, it is the battle.”
3. Who qualifies for a first-time home buyer loan?
Each first-time home buyer loan type or program has its own criteria to qualify. We’ll cover the basics here, and if you want to take a deeper dive, NerdWallet offers a great run down of benefits and qualifications.
- FHA loans require a 3.5% down payment along with a credit score of 580 or higher.
- Adjustable-Rate Mortgage (ARM) loans typically require a higher credit score but vary in other qualifications based upon the financial institution terms.
- Conventional loans also require a minimum of 3.5% down payment, a credit score of 580 or higher, and a debt-to-income ratio that is below 50%.
- VA loans require a person to be in service for at least 90 continuous days or be the surviving spouse of a veteran who died or was placed on disability due to military service. Down payments aren’t usually required, but you’ll need a source of income and a credit score of 580 or higher.
4. How much can I afford?
Start with a budget. Add up your expenses and your income to determine whether you’re able to take on a loan payment. You might find it’s a better option to buy instead of renting.
Consider the property tax in the area where you want to live, which you can find by visiting the assessor’s office for that county. Is it worth it for you to stay in that neighborhood, or are you open to another neighborhood close by with a lower property tax?
In many cases, you may be able to afford more home if you buy in a location with lower taxes.
Use a Mortgage Rate calculator to estimate your monthly payment. The knowledge of how much you can afford each month, compared with how much you’ll likely pay each month, will give you the confidence you’re making the best decision for your future.
5. Do I need a down payment as a first-time buyer?
Some programs allow you to borrow with 0% down. A good rule of thumb is to save up 3-20% of a down payment if you’re able. This will increase your buying power should you decide to make an offer on a house. Having a down payment could differentiate you from any competitors placing offers on the same house you love.
Another benefit of having a larger down payment is that it makes it easier for you to qualify for a loan because it means less risk for the lender.
20% Down Payment vs Paying PMI
If you’re leaning toward a conventional loan, you may need to consider the additional costs from private mortgage insurance (PMI). PMI protects financial institutions in case you default on the loan. Some lenders will wrap PMI into the loan, while some allow borrowers to pay separately.
The two main ways to get around PMI are to save up 20% for a down payment, or to qualify for a program or mortgage loan that doesn’t require PMI.
Now sure whether it’s best for you to save up to avoid paying PMI, or to just move forward with a small down payment? Talking with a home loan expert is a great place to start having that conversation.
6. How can I get help?
Attend a Home Buying Seminar
With so many things to consider, ease your anxiety by attending a Unitus no-cost seminar where we will guide you through the process.
Partner with a Trusted Realtor
When picking out your first home, getting on the same page with your realtor is crucial. Most realtors are in tune with their clients’ thinking. Make a list of prioritized needs and wants with your realtor to feel in sync.
A great place to start is our preferred network of agents through HomeAdvantage. They offer tools and expertise to make the home buying journey easier, and buyers on average, get an extra $1,500 after closing.
In time you’ll find the right house to make your home. As one of our Unitus Home Loan Experts, Michelle Hollenbeck, likes to say, “Go with the feeling. When you have the ‘feeling,’ you’ve got to go with your gut.”
About the author: Brad Goodenough
Brad joined Unitus Mortgage in November of 2013. He began as a dedicated mortgage originator and has developed into a results-oriented sales manager focused on maintaining a high level of service and integrity across the Unitus Mortgage team.