{"id":14745,"date":"2020-02-28T12:15:53","date_gmt":"2020-02-28T20:15:53","guid":{"rendered":"https:\/\/www.homelight.com\/blog\/?p=14745"},"modified":"2024-10-18T08:07:31","modified_gmt":"2024-10-18T15:07:31","slug":"buyer-first-time-homebuyer-loans","status":"publish","type":"post","link":"https:\/\/www.homelight.com\/blog\/buyer-first-time-homebuyer-loans\/","title":{"rendered":"Everything You Need to Know to Qualify for First-Time Homebuyer Loans"},"content":{"rendered":"

First-time homebuyers<\/a> nowadays face some tough challenges. With student loan debt delaying the average millennial<\/a> from purchasing a home by seven years, according to a 2017 study by the National Association of Realtors, financing a home can be daunting and seemingly unfeasible.<\/p>\n

Luckily, there are many first-time homebuyer programs, including loans and grants, that can bring purchasing a home within arms\u2019 reach.<\/p>\n

\u201cFor some people, it’s the difference between them qualifying for home and not qualifying for a home or having to wait,\u201d says Beth Steinke<\/a>, a real estate agent who ranks in the top 1% of Dallas\/Fort Worth Metroplex agents.<\/p>\n

She explains that if someone has to wait to save a down payment<\/a>, raise their credit score, or pay off debt before they buy a house, they lose out on the opportunity of gaining equity and run the risk of higher interest rates when they are ready to buy. But while a home loan<\/a> can help you buy a home much sooner than you could have imagined, if you jump the gun, you could end up losing money \u2014 and paying more \u2014 in the long run.<\/p>\n

According to a 2018 report by the Urban Institute, there are more than 2,500 grants and loan programs nationally<\/a>, which can make choosing the right one seem overwhelming. Some loans are specific to first-time homebuyers, such as an FHA loan<\/a>; you just need to find which one is right for you.<\/p>\n

We\u2019re breaking down the pros and cons of the most popular first-time homebuyer loans and programs that you could miss if you pick the first one that comes your way. They may help you find some big savings and get you that <\/i>much closer to achieving this milestone.<\/p>\n

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Source: (Ari Alqadri \/ Pexels.com)<\/figcaption><\/figure>\n

Don\u2019t wait to apply for your homebuyer loan<\/h2>\n

The best time to apply for a homebuyer loan is before you even begin your home search.<\/p>\n

\u201cThere is no sense and getting your hopes up, making plans, making decisions, and not knowing what you qualify for or if you qualify,\u201d Steinke says.<\/p>\n

A top buyer\u2019s agent<\/a> can help link you with a lender who is well versed in both local and national down-payment assistance programs. According to Steinke, most lenders can put you on a plan to have a loan ready in as little as a month to three months.<\/p>\n

Who is a first-time homebuyer, anyway?<\/h2>\n

While the definition of a \u201cfirst-time homebuyer\u201d may seem obvious, it\u2019s actually much broader than you think. Under some programs, it\u2019s defined as someone who hasn\u2019t owned a home for at least three years or more.<\/p>\n

In fact, according to Steinke, most programs that are available today are available to any buyer. So, if you\u2019ve gone from owning a home to renting and are once again in the market, you could be accidentally passing up this financial assistance.<\/p>\n

However, these loans and down payment assistance programs are more widely used by first-time homebuyers as they don\u2019t have equity in a previous home, so they need help with the down payment and closing costs<\/a>. On the other hand, a repeat buyer has the ability to use their home equity<\/a> and is more likely to have more wealth to put toward that next purchase.<\/p>\n

\u201cThey’re really not limited just to first-time homebuyers, necessarily,\u201d she says. Many of the loans are income-restricted and location-restricted, \u201cbut in general, anybody can use them.\u201d<\/p>\n

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Source: (Artem Beliaikin \/ Pexels.com)<\/figcaption><\/figure>\n

Loans or discounts you can get as a first-time buyer<\/h2>\n

These are the big opportunities for first-time buyers, and the pros and cons of each.<\/p>\n

FHA loan<\/h3>\n

Pros<\/h4>\n

This loan is backed by the Federal Housing Administration, and it is a great option for those who have low savings or a not-so-great credit score. You can qualify for loans for as little as 3.5% down if you have a credit score of 580 or more, and if your credit isn\u2019t very strong, they accept a credit score as low as 500 with a higher down payment. In certain cases, you can lower your monthly mortgage insurance payment with an FHA loan<\/a>.<\/p>\n

The FHA also allows for gifts of down payment money from family, employers, and charitable organizations. Plus, the closing costs and mortgage rates are usually lower for FHA loans.<\/p>\n

Cons<\/h4>\n

If your credit score is between 500 to 579, the minimum down payment is 10%. But if you don\u2019t put 10% down, you won\u2019t be able to cancel your mortgage insurance.<\/p>\n

Loan limits are also dependent on location, and the limit is lower in the least-expensive housing markets. Additionally, you can\u2019t apply for this loan if you\u2019ve had a foreclosure within the past three years.<\/p>\n

VA loan<\/h3>\n

Pros<\/h4>\n

Backed by the U.S. Department of Veterans Affairs, the VA loan <\/a>is limited to service members, veterans, and surviving spouses, and offers 0%-down loans. It also requires no mortgage insurance, has competitive interest rates, and relaxed credit qualifying standards, though some lenders have additional requirements. In Steinke\u2019s words: \u201cThe VA loan is the best loan out there.\u201d<\/p>\n

Cons<\/h4>\n

Because of the strict appraisal criteria, a VA loan can take longer to get than other loans, and you\u2019ll need to apply for a VA certificate of eligibility. Additionally, borrowers will sometimes need to pay a one-time funding fee, which can range from 1.4% to 3.6% of the loan balance. Unfortunately, some sellers don\u2019t like VA loans<\/a> because of appraisal delays and fees for sellers.<\/p>\n

USDA loan<\/h3>\n

Pros<\/h4>\n

No, you don\u2019t have to be a farmer to apply for the USDA loan. This homebuyer assistance program from the U.S. Department of Agriculture<\/a> applies to rural areas and offers 0%down loans. They also offer very low interest rates; with subsidies, those rates can be as low as 1%.<\/p>\n

If your credit score is 640 or higher, the process is streamlined, but those with scores below that threshold need to meet more strict underwriting standards. The priority for this loan also goes to those with the greatest economic need<\/a> (for example, those without housing or cannot secure a loan from a traditional source).<\/p>\n

Cons<\/h4>\n

The rates and income limitations vary by county, so depending on where you\u2019re buying, the rates may be higher than expected. To qualify, monthly debt payments you make cannot exceed 41% of your income, which is limiting to some buyers.<\/p>\n

Fannie Mae HomeReady and Freddie Mac Home Possible loans<\/h3>\n

Pros <\/b><\/h4>\n

Government-sanctioned companies will work with local mortgage lenders to give better options on conventional loans with as low as 3% down payments. The Fannie Mae HomeReady<\/a> and Freddie Mac Home Possible<\/a> loans vary slightly, but each only requires credit scores of 580, and parents can be co-borrowers without living in the home. Repeat buyers can also qualify for the Freddie loan.<\/p>\n

Cons<\/h4>\n

The Fannie loans are limited to foreclosed homes, which can mean more repairs, and it is only available to actual first-time homebuyers. Additionally, factors like a low credit score and a 50% debt-to-income ratio can push the down payment requirement higher than 3%.<\/p>\n

Good Neighbor Next Door<\/h3>\n

Pros<\/h4>\n

If you\u2019re an emergency medical technician, firefighter, or law enforcement officer \u2014 a.k.a., a \u201cgood neighbor\u201d \u2014 you can qualify for this loan sponsored by the Department of Housing and Urban Development<\/a> (HUD). It offers 50% off select properties <\/a>in revitalization neighborhoods. Yes, you read right.<\/p>\n

Cons<\/h4>\n

These houses are in foreclosure, so it\u2019s slim pickings for a good deal. You also need to commit to staying put for at least 36 months, making moving incredibly difficult.<\/p>\n

State first-time buyer programs<\/h3>\n

Depending on where you\u2019re buying, there are plenty of local and state first-time homebuyer programs, each with its own set of pros and cons. Check to see what programs are available in your area<\/a>.<\/p>\n

Home renovation loans<\/h3>\n

You can also apply for home renovation loans backed by the VA, USDA, or Fannie or Freddie. There are also a few additional assistance programs for home renovations that are worth checking out.<\/p>\n