Mortgage 101

Best Loans for a First-Time Homebuyer

By Courtney Christensen on October, 3 2019
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Courtney Christensen

When it comes to buying a home, first-time buyers often have a lot on their plates. Millennials and younger generations typically have the biggest hurdles since it’s likely going to be the biggest investment they’ve made in their lives so far. It takes tons of research, planning, and budgeting to buy a home which is why there are so many loan programs to help first-time homebuyers.

It’s important to note that some of these programs define ‘first-time homebuyer’ as anyone who has not owned a home in the past 3 years - even if they aren’t technically buying their first home. 

Common Home Loans for First Time Buyers

FHA: An FHA (Federal Housing Administration) loan is designed specifically for borrowers who have a low-to-moderate income. It requires a low down payment, which means buyers are not responsible for paying a huge chunk of money upfront. Plus, even borrowers with a lower credit score may qualify for this loan. 

Benefits for First-Time Homebuyers: Younger generations with little to no lines of credit as well as two or three part-time jobs are able to qualify for this loan. No minimum income is required, and with a 3.5% down payment, you will save thousands upfront. 

USDA: Another government-backed loan, the USDA (US Department of Agriculture) loan was created in an effort to bring more families into rural areas. Like the FHA loan, it is also intended for those with lower income. If you qualify, you may be able to borrow a USDA loan with absolutely no down payment at all. 

Benefits for First-Time Homebuyers: Credit requirements are higher for this loan than the FHA, but those who qualify may be able to get into their new home with no money upfront (down payment and closing costs included). While the home must be in a qualifying rural area, 95% of US homes are considered in eligible areas. 

VA: This government-insured loan is for eligible those in active military service, veterans, and their immediate families (typically surviving spouses). Because of this, buyers could qualify for assistance from the US Department of Veteran Affairs if they struggle to make payments on their home. 

Benefits for First-Time Homebuyers: A VA loan does not require a down payment, which means you can move in without an upfront cost. Additionally, this loan also doesn’t require mortgage insurance. Mortgage insurance is typically applied to loans with a less than 20% down payment. 

Less Common Loan Programs

Good Neighbor Next Door: This loan is backed by HUD (US Department of Housing and Urban Development). It was initially created in order to breathe new life into urban areas by introducing public service employees into the community. Police officers, teachers, firefighters, and emergency medical technicians are eligible for this loan. 

Benefits for First-Time Homebuyers: While only certain homes are eligible, the Good Neighbor Next Door loan allows for a 50% discount on the home. That’s definitely a huge incentive, although you must commit to living in the home for 3 years. 

HomeReady: This mortgage is backed by Fannie Mae (an organization that provides financing for homeowners across the US). It, like the other loans discussed in this post, has more flexible requirements than a conventional mortgage. Your income must be less or equal to your area’s median income, and your credit score can be as low as 620. It’s important to note that borrowers who qualify for this loan must take a homeownership education course. 

Benefits for First-Time Homebuyers: A down payment on a HomeReady mortgage must be at least 3%, which is lower than an FHA loan by half a percent. Unlike the FHA, you are also able to eventually remove your mortgage insurance with a low down payment. 

Whichever loan you choose, make sure you speak to a dedicated and knowledgeable loan officer. They are a great resource for first-time homebuyers and will help prevent common mistakes and hurdles borrowers often experience.