Although most people with good credit history can qualify for a mortgage to buy a home, special programs exist for first time home buyers. If you are a first-time home buyer, you may be able to get a loan on favorable terms and conditions that are not available to other borrowers.
Depending on your financial situation and your lender, the benefits to first-time home buyers can include low- or no-down-payment loans, grants, forgivable loans for closing costs, down payment assistance, and federal tax credits.
Steps to Success
Determine Whether You Meet the Definition of a “First Time Home Buyer”
You are considered eligible to apply for first-time home buyer loans and benefits if you have never owned a principal residence. You may also be considered eligible under some programs if you have not owned your principal residence within the past three years.
Other programs offer first-time home buyer financial assistance to purchase property in specific areas targeted for redevelopment, even if you are a repeat buyer.
Certain loan programs are available based on other criteria, regardless of your status as a first-time home buyer. For example, if you are a military service member or veteran, you are eligible for a VA loan that usually requires no down payment. If you are buying a property in a rural area, you may be eligible for a USDA loan which also requires nothing or little down.
Obtain a Copy of Your Credit Report
Before you apply for a loan, you should get a copy of your credit report from all credit reporting entities. You can get a free copy of it from the government-run site at annualcreditreport.com. It allows you to get a free copy once per year. You should also get a copy from each major credit bureau.
The reason you need your credit report is to make sure they contain no errors. Your lender will rely on your credit reports in determining whether you can qualify for a mortgage and if so, what fees and interest rates you will have to pay.
It is not unusual to find erroneous information on your credit report, which can negatively affect your credit score. Take steps to correct the errors by contacting the credit bureau and following their procedures to correct erroneous information. You need to make sure your credit report is accurate and your score is as high as possible to qualify for a mortgage on the most favorable terms possible.
Check Your Credit Score
Your credit score (or FICO score) is one of the most important factors in determining your loan eligibility and how much you will pay in down payment and interest.
As a general rule of thumb, you need a credit score of at least 580 to qualify for a low down payment loan. If your credit score is less than stellar, you can quickly improve it by paying off or paying down credit card balances, refraining from seeking any new credit, and paying all of your bills on time. Once you do that, you can check your score to see if it has improved enough for you to qualify for a mortgage loan.
With a credit score of 580, you may qualify for a loan guaranteed by the Federal Housing Administration (FHA). An FHA-guaranteed home loan enables lenders to loan to less creditworthy borrowers, but you may incur some upfront costs. With an FHA loan, first time home buyers can qualify for loans with as little as 3.5% down with a credit score of at least 580.
With a score between 500 and 579, you’ll need a 10% down payment but even with that down payment, you may have trouble getting a loan depending on your particular financial circumstances. You may have to wait to qualify until you bring your credit score up to 580.
For a VA loan for a military borrower, the minimum credit score you need varies by lender. Most VA lenders require a 620 FICO score and may have other minimum qualifications as well.
If you are seeking a USDA loan, you need a credit score of 640 or higher to qualify for streamlined processing. If your score is lower than 640, you will have to undergo a more rigorous underwriting process. First time buyers with little or no credit history should expect to provide information pertaining to their history of paying utility bills or similar payment obligations.
Set Your Budget
One advantage to being a first-time buyer is that standard income limitations may not apply. That is also true if you are buying a home in a particular targeted area, or if you are a military veteran.
Nonetheless, it is important that you show financial responsibility. That means setting a budget that helps you determine how much you can afford in house payments while also meeting your other monthly obligations. If you need help setting up a budget, your lender may be able to help you, or you can find free budget programs online.
Research Loans and Grants
Do some homework online to find out more information about what loan and grant programs you may be able to use. Check the HUD website and your state housing authority for various forms of assistance that may be available to you.
Reach Out to Fairfax Mortgage Investments for More Information
Whether you are a first-time home buyer or a repeat buyer, contact the mortgage professionals at Fairfax Mortgage Investments. They are experts on the various financing programs available to home buyers and can work with you to find the best one for your financial situation.
