What Is The Best Loan For First Time Home Buyers?
If it's your first time home buying, look for a way to lower the bar and get your foot in the door.
Perhaps that means a mortgage option with a lower down payment, or one with less stringent credit or income standards.
Programs like the FHA, VA, or Conventional 97 loan can help. But there is no such thing as a “one-size-fits-all” mortgage. So explore all of your options.
Whatever your unique situation calls for, there is likely a first-time buyer loan out there that can help.
Find the first-time buyer loan that is best for you. Start here (11/21/2021)
In this article (continue to …)
The 6 Best Mortgage Loans For First Time Buyers
Below we will dive into the best loan programs for first time home buyers. But first here is a brief overview of 6 top programs and their basic requirements:
Minimum depositMinimum Credit ScoreMortgage Insurance Required?FHA loan3.5% 580YesConventional 973% 620Yes, if <20% lessHomeReady / Home possible3% 620Yes, if <20% lessUSDA loan0% 640YesVA loan0% Normally 620No Good neighbor next door$ 100580Yes
Find the first-time buyer loan that is best for you. Start here (11/21/2021)
1. FHA loans
FHA loans are "guaranteed" by the Federal Housing Administration. This does not mean that you are guaranteed to be admitted. Rather, the FHA reimburses the mortgage lender if the borrower defaults on their mortgage loan.
Because an FHA mortgage has this built-in protection, it can offer a lower barrier to entry than most other mortgage products.
FHA Loan Benefits For First Time Home Buyers
Minimum down payment requirement is 3.5% (that's only $ 7,000 on a $ 200,000 loan) Low Interest Rates Lowest creditworthiness requirement of any mortgage program
To qualify for a 3.5% deposit, you must have a credit score of at least 580. However, if you can deposit 10% your score could be up to 500.
FHA also offers flexible income guidelines. You don't have to make a lot of money to qualify.
The major disadvantage of FHA loans is that they require mortgage insurance. This is both an upfront subscription fee and an annual mortgage insurance premium that is spread across your monthly payments.
But for many, mortgage insurance is a small price to pay to get off the rent and start building home equity.
Find out if you qualify for an FHA loan. Start here (11/21/2021)
2. The conventional credit 97
If you're just looking for a low down payment on your home loan, the Conventional 97 can be a smart choice. With these traditional loans, you only need 3% to qualify.
Like FHA loans, they require annual mortgage insurance. But you can actually cancel your personal mortgage insurance (PMI) after you've acquired enough equity in the home.
On the other hand, with most FHA loans, the mortgage insurance will remain in place until you refinance into another type of loan.
97 conventional loan services for first-time home buyers
Buy with just 3% less Cancelable Mortgage InsuranceNo upfront insurance feeA minimum of 620 creditworthiness
Traditional loans also do not require an up-front insurance fee, which can save you money on your closing costs. (The upfront fee is $ 3,500 for an FHA loan of $ 200,000!)
After all, conventional loans are not an option when you have poor credit history.
You must have a credit score of 620 or more to qualify for a conventional loan. If your score is below that, an FHA mortgage may be a better choice.
Find out if you qualify for a Conventional 97 loan. Start here (11/21/2021)
3. Fannie Mae HomeReady and Freddie Mac Home Possible Loans
Fannie Mae HomeReady and Freddie Mac Home Potential Loans are two types of conventional mortgages that can help you get your foot in the door without too much cash upfront. Both types of mortgages only require a 3% down.
HomeReady and Home Potential Benefits for First Time Buyers
Only 3% deposit requiredPrivate mortgage insurance can be terminatedRoommate income can help you qualifyUse gift funds for up to 100% of deposit (home possible) credits from 620 are accepted
If this is your first time getting into the home buying process, you must take a homebuyer course to qualify.
And like the Conventional 97, HomeReady and Home Possible come with cancelable private mortgage insurance.
Again, these mortgage options require at least adequate creditworthiness. You need a FICO score of 620 or higher to qualify for Fannie Maes HomeReady or Freddie Macs Home Possible.
Find out if you qualify for 3% off with Fannie or Freddie. Start here (11/21/2021)
4. USDA Loans
If you are ready to buy a home in a more rural part of the country, a USDA loan might be your best mortgage option.
USDA loans are supported (or sometimes even made directly) by the U.S. Department of Agriculture. And as with the FHA loans, this government support has great benefits for the buyers.
USDA Loan Benefits For First Time Home Buyers
No Down Payment RequiredLow Interest RatesBest Value Mortgage InsuranceDesigned to help lower income homebuyers
The catch? You can only buy a home in certain parts of the country. Because the USDA loan is intended to promote home ownership in less populated regions.
The USDA's Eligibility Map Tool breaks down which areas are eligible. In fact, it's 97% of the US landmass – but you can't shop in or around a large subway area.
Find out if you qualify for a zero down USDA loan. Start here (11/21/2021)
5. VA Loans
If you are a military service or veteran (or your spouse is) then the VA mortgage is the best way to become a homeowner.
VA Loan Benefits For First Time Home Buyers
No Down Payment RequiredNo Ongoing Mortgage InsuranceLow RatesLow Closing CostsLow Credit Accepted
There are no real drawbacks to using a VA loan. So if you can qualify for one, this is definitely something you should consider.
Remember, only certain mortgage lenders are approved for VA loans, so be sure to shop around.
Find out if you qualify for a zero down VA loan. Start here (11/21/2021)
6. Good neighbor next door
Good Neighbor Next Door (GNND) is a federal loan program of the U.S. Department of Housing and Urban Development (HUD), which offers a 50% discount on the purchase price of real estate in "revitalization areas".
In return for this extensive support, homebuyers must commit to living in the property for 36 months.
In addition, you will need to buy a home that is listed for sale by HUD. You can check the offers for your state on the HUD Special Programs website.
While there are no income limits to qualify, this HUD program only supports teachers (pre-kindergarten through 12th grade), firefighters, law enforcement officers, and paramedics to help them achieve their home goals.
Other helpful programs for first time home buyers
There are other loan programs and forms of assistance that can make the home buying process easier (and more affordable) if you are a newbie.
Here are just a few of your options:
Support programs for down payments: There are innumerable programs and loan options that can help you reduce or even eliminate your down payment. Some don't even have to be paid back. Check out our guide to Down Payment Assistance Programs in Your StateGraduation aid: There are also programs that can help offset your closing costs. Here, too, some of them do not have to be repaidDeposit gifts: If you have a loved one who would help you purchase this home, a down payment gift is an option. Just make sure the loan program you are using allows it (not all do). Get a co-borrower: Finally, hiring a co-borrower can help you qualify for a home purchase. If they can help towards your down payment and closing costs, this is the first step. If they have good credit and a steady, moderate income that can help you qualify for your loan amount, that's even better
Frequently Asked Questions About The Best Initial Loans For Home Buyers
Who is considered a first-time home buyer?
If you are looking to qualify for a first-time home buyer loan program, most government and nonprofit programs will consider you a first-time home buyer if you have not owned a home in the past three years. However, check with your real estate agent if you have any concerns.
What's the Easiest First Time Home Buyer Loan?
The best mortgage loan program depends on your financial situation. For most first-time buyers, however, an FHA-covered loan is the easiest to come by because its requirements are more lenient and allow for lower credit scores and less stringent debt-to-income ratios than traditional home loans.
How do I get a credit pre-approval?
Your mortgage lender can pre-approve a home loan based on the financial information you provide, including tax returns, W2s, bank statements, pay slips, a tough scrutiny of your credit report and social security details. While pre-approval is a more rigorous underwriting process, you can also pre-qualify for a home loan, which is a general estimate of how much a mortgage lender is willing to offer.
Check out the current mortgage rates
The final result? Home ownership isn't as out of reach as you might think. With the right loan program and plan, applying for a home loan is not only possible, but affordable too.
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