How first-time home buyers can secure a mortgage
First-time home buyers represent a substantial portion of the property seeking public. Accounting for roughly one-third of sales at any given point in the typical year, according to the National Association of Realtors, every first-time home buyer enters the market with the hopes of realizing the American dream - ideally at an affordable price.
But buying a home on a budget may seem easier said than done. Fortunately, there are a variety of opportunities that you can take advantage of to buy a home you've set your sights on.
What do you need when applying for a mortgage?
After you've taken a look at some of the listings in your area and seen what the prices are, you'll need a mortgage provider so you can apply for a loan. Lenders are quite plentiful, so you'll have plenty of options to choose from. Whoever you go with, they'll need to see some information to determine your financials. Some of the items to gather include your credit report, pay stubs from the last few weeks, a bank statement of available funds and a copy of your federal tax returns.
Your lender will pull a credit report. Your credit report, which you can also obtain from any of the three credit bureaus for free, offers a window into your payment history. They'll be looking to see if you take care of bills on time as well as if you have any debt. The higher your score, the more likely it is you'll be approved. Generally speaking, a FICO score of 740 or above is the ideal. Borrowers are approved with lower scores, but chances are greater that you'll get a lower mortgage rate with a strong score.
Is there a program for first-time home buyers?
Would-be buyers - regardless of whether they're first-time or not - come to the process with unique needs. Understanding this, there are many mortgage options to choose from. One of the more popular types for first-time buyers - including low-income families - are FHA loans. Backed by the Federal Housing Administration, FHA loans are often ideal if you're a new buyer because down payment requirements are lower.
For example, borrowers for other loan programs and products may need to spend 20 percent of the home's value as the down payment, as may be the case for a jumbo loan. Not so with FHA loans. Down payments as low as 3.5 percent are available. Additionally, FHA loans can be worthwhile to people with less-than-sterling credit.
Of course, conventional mortgage loans shouldn't be overlooked. There are conventional loan programs that allow for down payments as low as 3 percent.
Another option are VA mortgage loans. The Veterans Administration issues these through private lenders and as their name suggests, they're exclusively for active and former members of the armed services. Applicants don't need to come up with a down payment, nor do they need private mortgage insurance. Typically, mortgage insurance is necessary when down payments are less than 20 percent.
The path to homeownership is paved with possibilities. Getting your finances in order and understanding some of the terminology - such as loan-to-value ratio and debt-to-income ratio - can help you reach a successful destination. Your mortgage lender can help you understand this kind of terminology.
There are even more first-time home buyer options available than mentioned above, and great tools to help you discover what kind of mortgage program is going to work best for you. Reach out to your favorite loan officer today to ask your questions and get started!