First Time Homebuyer Program
Did you know that in 2021, 34% of all homebuyers were first-time homeowners? Knowing how to finance a loan can be one of the most crucial things you must do if you are a first-time homebuyer.
One of the biggest challenges in getting your finance loans is finding suitable lenders and financial experts to help you. Home loans can be used for various purposes, including purchasing a house for the first time or upgrading an existing one.
This article discusses the requirements for first-time homebuyers and provides an overview of their loan options. This write-up also includes some tips for first-time homebuyers.
Knowing what is involved in a financial loan for your potential first home is a great way to get the most out of buying a property. But if you already have loans that leave you short of cash every payday, then get some direction on how to get out of a payday loan.
Requirements for First-Time Homebuyers
A first-time homebuyer is usually someone who has never owned a home. Still, the exact definition can vary depending on the program or agency. The government considers someone a first-time homebuyer if they have not owned a primary residence within the past three years.
First-time homebuyers can include renters, children living with their parents, single parents, and people who are living rent-free. To qualify for a home loan, the borrower must meet basic mortgage requirements set by the lender and program.
First-time homebuyers should meet several qualifications, including:
- Steady income
- Two-year job history
- Reasonably clean credit history
- Credit score that is at least 580 for FHA (can change)
- Up to 100% Loan to Value (can change)
- Debt-to-income ratio below 57%, depending on program (can change)
Loan Options for First-Time Homebuyers
Jumbo Loan - A jumbo loan is above the FHFA’s (Federal Housing Finance Agency) limit. Unlike conventional mortgages, jumbo loans are not eligible to be guaranteed by Fannie Mae and Freddie Mac, which are government-sponsored entities created by the United States Congress to support home ownership.
Government-Insured Loan - The government backs government-insured loans to guarantee mortgage repayment if you default on payment.
Conventional Loan - A conventional loan is any mortgage the government does not guarantee.
Adjustable-Rate Mortgage - An adjustable-rate mortgage (ARM) is a home loan with variable interest rates. Initially, the interest rate is fixed for some time. After that, the interest rate applied to your outstanding balance resets yearly or monthly.
Fixed-Rate Mortgage - Fixed-rate mortgages charge interest at a set rate, which never changes. Homeowners benefit from consistent monthly payments, which makes budgeting easy.
Tips for First-Time Homebuyers
1. Evaluate your Debt-to-Income Ratio.
You need to show that you can handle all of your financial obligations. The debt-to-income ratio (DTI) is a metric that can help determine if you have too much debt.
To avoid financial stress, you should keep your monthly debt below 57% of your gross monthly income, including your mortgage payment if you are looking at an FHA loan. However, lenders do have overlays and discretion on what they may lend on, so it can vary.
Based on the Consumer Financial Protection Bureau (CFPB), a maximum DTI ratio is required for lenders to qualify their mortgages as “safe” investments.
2. Research Homebuyer Assistance Programs
Some states and cities offer first-time homebuyer programs to help you purchase a home, including low-interest-rate mortgages, closing cost assistance, and down payment assistance. In addition, some first-time homebuyer programs offer tax credits.
3. Calculate How Much You Can Afford
Remember that a mortgage payment is only one of many expenses when buying a home. You must plan for property taxes, homeowners insurance, and maintenance costs.
You might have to pay higher utility bills. You should also have some savings set aside for emergencies. Lenders will want to see one to two months of reserves in the bank, which is standard for most types of mortgages.
When buying a condominium or townhouse, you might have to pay homeowners association (HOA) fees. These fees will also be assessed when the lender evaluates your budget.
Different lenders require different reserves, and the amount required depends on the size of your loan. Even if your mortgage does not require you to keep a reserve account, keeping a couple of months’ worth of living expenses in the bank is a good idea.
4. Review and Improve Your Credit History
Your credit score can affect your qualification for a mortgage and how much interest lenders will charge.
Lenders may require a higher down payment and charge you a higher interest rate on your loan if they think you pose more of a credit risk. Debtors with a credit score of 800 or higher often enjoy the ability to borrow more which might show favorably in payments and interest rates.
Get Pre-Approval for a Mortgage
A mortgage pre approval is the lender’s offer to loan you a certain amount under set conditions. A preapproval letter is essential when buying a house because it shows home sellers and real estate agents that you’re serious about buying.
Apply for pre approval before you begin your search for a new home. A lender will generally pull your credit report and review documents to verify that you’re a reliable borrower. You can get preapproved for a mortgage loan from multiple lenders as long as you do so within 45 days.
A home loan is a big commitment, as you are purchasing a place to make memories for years.
Your search for financing loans for your potential first home can be a smooth process if you take the time to do your research. Any potential first-time homebuyer must know what financing options are available to them.
8 Tips For First-Time Homebuyers
Fixed-Rate vs. Adjustable-Rate Mortgages: What's the Difference?
First-time Homebuyers Statistics
Who qualifies as a first-time homebuyer?
Fannie Mae and Freddie Mac: An Overview
Adjustable-rate mortgage (ARM)