I’m a First-Time Home Buyer: Is There a Loan Designed for Me?

As a first-time homebuyer, you probably have many questions going into the process. What is the process of buying a house? What are the requirements? How much house can I afford?

All of these questions boil down to one basic concern — paying for the home. Unless you have cash to burn for the asking price as well as the refurbishment and repairs, you will need to qualify for a loan. You may have heard of programs designed to help people get into a home, but you don’t know the details. It is time to find out about the loans that are specifically made for you as a first-time homebuyer.

The FHA Loan

The FHA (Federal Housing Administration) loan is the most popular type of home loan for first-time homebuyers. It reduces the requirements for credit score and down payment — in most cases, FHA loans requirements include only a 580 credit score and 3.5% of the buying price on the home for a down payment. Qualifying for a FHA loan may also be easier than this. Depending on your financial situation, you may be able to qualify with a much lower credit score.

The Energy Efficient Mortgage from the FHA provides a bit of extra help to first-time home borrowers who are looking to make energy efficient improvements to a home. The FHA also has a 203k program that is meant specifically for home improvement. With 3.5% down, you can get money to make certain changes and upgrades to a home above and beyond the base price of the mortgage.

The USDA Loan (RD)

The United States Department of Agriculture (USDA) helps first-time homebuyers who are looking to purchase homes in areas that need development. USDA requirements are similar to FHA requirements, although buyers do not need to have anything as a down payment for the USDA. Depending on the location of the property and your other financial characteristics, you may be able to qualify for a 0.35% mortgage rate.

The VA Loan

Veterans of the United States Armed Forces can take advantage of special loans when buying a first home. The VA also requires no down payment for first-time homebuyers. The requirements for a VA loan also include no requirement for mortgage insurance.

Down Payment Assistance Loans (DPA)

There are many state and local programs that will actually help first-time homebuyers with the down payment. These programs can be found on city and county websites.

These DPA programs include HUD’s Good Neighbor Next Door Program specifically for teachers, medical technicians, emergency technicians, and law enforcement. There is also a $100 down program for properties that are in HUD foreclosure (HUD REO). You can search for those properties here.

The Conventional Loan

Fannie Mae offers the Conventional 97 Loan program in order to compete with FHA loans. If you have a 620 credit score and at least 3% of the buyer’s price for the down payment, you can qualify for this loan program.

Conventional loans have more stringent requirements for first-time homebuyers — 20% of the home price for a down payment as well as a good credit score if you want to avoid paying private mortgage insurance. Why should you go for a program that requires more? Well, the conventional loan requires more, but it also gives more to you.

Regardless of how much money you have for your down payment, taking advantage of an FHA loan also requires you to pay private mortgage insurance (PMI). PMI can add up to 1% of the purchase price of a home per year on your expenses. The conventional loan also ends up costing less than the VA loan, because you can get lower interest rates for a high down payment.

The Bottom Line – First Time Home Buying Advice

If you pick the right loan, you can qualify for lender credit, no down mortgages and other benefits that are set aside specifically for first-time homebuyers. Take the time to understand your advantages for things like 203k FHA loans. Check your USDA loan’s eligibility. Start qualifying for VA loan program today.

Should you wait until you are ready to buy your first house to start gathering information about it? Of course not! No matter how far off that first house seems, learning the landscape will always leave you at an advantage. With just a bit of hard work, you have so many ways to break into the American Dream – one of them is bound to be for you. Be sure to bookmark this blog for ongoing information that is specifically geared to you — the first-time homebuyer.

We invite you to contact us today.

Southwest Funding, Limited Partnership (NMLS #32139) is an equal housing lender. Loan product availability is subject to many factors including loan amount and qualification of borrower. Not every applicant qualifies or is eligible for every loan program. Rate and annual percentage rate (APR) calculated on a 360-day year with typical/normal closing costs. Rates and annual percentage rate (“APR”) are dependent on factors including, but not limited to: loan program selected, credit, collateral, income, assets and overall financial history. Not all applicants will be approved for a loan. All loan programs, terms, and interest rates are subject to change without