Purchasing a home can be a scary and overwhelming process, particularly for first time buyers. There are so many different types of loans, each with their own pros and cons.
While many factors play a part as to which loan best suites you, the starting point is figuring out what you qualify for. When buying a new home there are a few hurdles an individual must overcome in order to get pre-qualified and to get your loan approved. Below we review what all it takes to get into your first home.
First-Time Home Buyer Series:
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Each loan program has different qualification requirements, but in general they’re all similar. As a first time buyer these may be new to you, but the most important factors that determine if you qualify are:
There are two loan programs geared toward first time buyers, and specifically make it easier for first time buyers to qualify.
FHA loans and Conventional 3% down loans both offer an affordable option for first-time home buyers. They also have more flexible guidelines compared to other programs, making them easier to qualify for.
Below is a break down of the general qualifications needed for each first-time buyer option, as well a detailed summary of the guidelines for each option.
|Minimum Credit Score||520||620|
|Minimum Down Payment||3.5%||3%|
|Eligiblity||Available for both first time and non-first-time home buyers||Available for both first time and non-first-time home buyers|
|Property Requirements||Must be primary residence, can be 1-4 units||Must be single unit primary residence|
|Income Limits||No Income Limits||Income Limits based on location|
|Home Buyer Education Course||Not Required||Required|
The first and easiest loan for a first time buyer to qualify for is the FHA or Federal Housing Administration loan. While the program wasn’t specifically intended for first-time buyers, it’s become the top choice simply because it’s easier to qualify for.
FHA loans were created after the Great Depression to stimulate growth in the housing market and make home ownership more attainable for the general public.
FHA loans offer some of the most lenient overall requirements in terms of DTI, overall credit score and minimum required down payment. These lenient requirements make FHA loans extremely popular amongst first-time home buyers.
In order to make home ownership more attainable, Fannie Mae and Freddy Mac recently came out with a few options that allow for a lesser down payment. This new option consists of 3% down to qualify as opposed to the traditional 5% down that used to be the norm.
However, in order to qualify for one of these up options an individual must meet certain criteria.
The first conventional 3% down option is strictly for first time home buyers. This option is available to any first-time home buyer who qualifies for the Conventional guidelines mentioned above in the chart.
It’s worth noting, the only benefit with this option is that it allows for a lower down payment than the traditional 5% down Conventional loan available to non-first-time buyers.
General Qualification Requirements for Standard 3% Down
The second conventional 3% down option is a HomeReady loan, secured by Fannie Mae, or the Home Possible loan, secured by Freddy Mac.
Home Ready and Home Possible loans offer the same reduced down payment with a few additional benefits, like reduced mortgage insurance and a lower interest rate.
In addition to having meet all conventional loan qualifications mentioned above, an individual must also adhere to a few additional guidelines.
Additional Qualification Requirements for HomeReady
HomeReady – https://homeready-eligibility.fanniemae.com/homeready/
Home Possible – http://www.freddiemac.com/homepossible/eligibility.html
FHA loans are significantly easier to qualify for as they have some of the most lenient requirements in the industry. This is true not only for first time buyers, but also the next time you look to purchase or refinance a home. However, depending on an individual’s complete financial profile a Conventional 3% down option may make more sense.
In order to know what loan product ultimately works best for you it is important to talk to a licensed loan advisor who can break down your options for you.