First-Time Homebuyer Mortgage Options
In this blog, we will cover the various first-time homebuyer mortgage options that are available in today’s mortgage marketplace. There are many different types of first-time homebuyer mortgage options. We will review first-time homebuyer mortgage options for borrowers with bad credit, no credit, high debt-to-income ratios, 1099 wage earners, and self-employed borrowers.
What Is The Best First-Time Homebuyer Mortgage Options?
Every loan program has its lending requirements concerning credit, down payment, and debt-to-income ratio requirements. Government and conventional loans are traditional mortgage loans for borrowers with traditional income. FHA loans are the best first-time homebuyer mortgage options due to the low credit score minimum requirements and the high debt-to-income ratio caps.
There are non-traditional first-time homebuyer mortgage options exist, such as non-QM and alternative financing programs. Never in history have we had such a wide selection of mortgage loan options for owner-occupant, second homes, and investment property mortgage loans as we do today.
What Is The Minimum Down Payment For a House?
USDA and VA loans do not require any down payment. Lenders offer 100% financing on USDA and VA loans. FHA loans require a 3.5% down payment for homebuyers with at least a 580 credit score. Fannie Mae and Freddie Mac require a 3% down payment for first-time homebuyers on conventional loans and 5% down payment for buyers who had an interest in a property in the past three years.
In today’s blog, I’m going to discuss a demographic that is very important to the industry and me personally. According to Zillow, First Time Homebuyers make up about 45% of the market which is up 8% from 2021. As an FTHB (First Time Homebuyer) specialist with Non-QM Mortgage Lenders, I take great pride in helping first-time homebuyers realize the American dream of home ownership becomes a reality.
How Do I Start The Process If I Am a First-Time Homebuyer?
When it comes to being an FTHB, it is imperative that you thoroughly understand the mortgage and home buying process, make sure you are financially comfortable, and, most importantly choose the right professionals to help guide you through.
When the day comes, and you decide that you are ready to start the process, there is a sequence of steps you should follow to ensure a smooth and enjoyable experience. In this section, I will touch on those steps and advise on best practices or decisions I have used in the past.
What Is More Important Location or House?
First and foremost, you should research and choose an area you want to live in. There are many factors to consider when choosing a specific location.
Such factors include crime rate, proximity to people and places you regularly frequent, including work, school, family, friends, and shopping, type of properties and communities the area offers, and sometimes weather conditions. Once you have the location picked, you would benefit by researching the market.
What Are Some Costs To Consider When Buying a House?
Learning what the average home price, property taxes, and any other economic factors important to you are will give you an understanding of the financial commitment you are about to make.
Once you know where you want to live and have an understanding of the average costs associated with it, it is time to schedule a consultation with a lender of your choice.
How Do I Decide Which Mortgage Lender To Use?
When choosing a lender, you want to choose someone that is not only experienced in FTHB purchases but someone who also has access to the right loan products and the best interest rates. The team at Non-QM Mortgage Lenders an affiliate of and dba of NEXA Mortgage, LLC will check all those boxes.
The consultation will help give you an idea of what you could qualify for based on your income and debt ratios, what funds are needed for a down payment and reserves, and what supporting documentation would be needed to proceed. As long as everything is in order, you could be issued a pre-qualification letter that day.
How Does Getting Pre-Approved Work?
Receiving a pre-qualification letter will provide you with a sense of confidence to start looking at homes. The next step is to meet with a Real Estate professional in your area. They will also do a consultation.
One of the first questions they will ask is if you have been pre-qualified- see, you’re already ahead of the process! Once you choose a realtor who is knowledgeable of the market, experienced in helping FTHB and is a good fit for you based on personality, it is time to start shopping for a house!
What Are The Available First-Time Homebuyer Mortgage Options?
There are hundreds of loan programs available in today’s market. Despite all the different options available to consumers, an FHA loan stands out the most for FTHB. The FHA loan is a mortgage insured by the Federal Housing Administration.
These types of mortgages are ideal for first-time home buyers because they require a smaller down payment and the credit guidelines are less stringent.
First-Time Homebuyer Mortgage Options For Bad Credit
A first-time home buyer could obtain an FHA Mortgage with as little as a 3.5% down payment and a FICO score as low as 500.
The lower the FICO score, the higher the down payment required and the interest rate. In the months leading up to your purchase, there are certain things you should concentrate on to qualify for an FHA loan. As I said earlier, the minimum down payment is 3.5%, and those funds need to season in your bank account for 60 days. It is important to understand that you will need to be able to provide proof of two consecutive years of constant work history.
Down Payment and Closing Costs on Home Purchase
Depending on the mortgage program you choose, the down payment will differ. With the FHA loan, the minimum down payment is 3.5%. If your credit score is below a 580 fico score, you must put 10% down.
Conventional loans require a 3% down payment for first-time homebuyers and 5% for a person who already owned a home in the previous three years. In addition to the down payment, other fees will require money upfront. Closing costs are separate from the down payment. The amount due for closing costs can range between 2 and 5 %, which is largely affected by the loan size.
Using Seller Concession For The Down Payment on a Home Purchase
Depending on how you negotiate the purchase offer of the home, you may be able to have the seller contribute up to 6% for closing costs. Other charges you will be required to pay upfront are one full year’s payment for homeowners insurance, the appraisal, and the home inspection (optional but highly recommended). In addition to upfront charges, you will have to be able to show three months’ worth of mortgage payments in your bank account for reserves.
The most common hesitation in FTHB is the down payment. With an FHA loan, you can be gifted the down payment. Many young adults looking to buy their first home will receive a downpayment from their family. You will have to provide a letter from the person giving the gift stating they do not expect the money to be repaid.
Buying a House With a Gift of Equity
There is another form of down payment known as a gift of equity. This scenario is typically used if someone is buying a home from a relative. They will use a portion of the proceeds to gift the down payment. If these are not options for you, you may want to look into a down payment assistance program.
Down payment assistance programs or grants are available and usually differ from state to state. It is important to remember that if you decide to take advantage of a down payment assistance program, it may take 60-90 days before it is available.
What Are The Documents Required To Start The Mortgage Loan Process
Most often the purchase of a home will be the largest purchase one will make in their lifetime. Consequently, lenders require significant information so underwriters can confirm your ability to repay the loan.
Standard documentation requirements for an FHA loan would include 2 years of tax returns, two months of bank statements, valid government identification, verification of employment, an insurance binder showing proof of insurance, a copy of the purchase contract, and any retirement accounts you may have. There are different situations that will warrant additional documentation, but for most FTHB standard documentation is required.
