First time home buyer Loans

In-Depth: Looking into available first time home buyer loans and programs

first time home buyer loans

First Time Home buyer Loans and programs

First time home buyers have a lot to learn. First, there’s the terminology and paperwork. Then you have the fees that can make anyone’s head spin. What about the down payment? Do you have enough? Is your credit score high enough? When will you be ready for a home?

Check to see if you qualify first

If you’re shopping for a home loan, check to see if you qualify first then compare your loan options.

Fortunately, first time home buyer loans make it much easier on you than you thought possible. You may not need a down payment or perfect credit. These programs make it easy to get into your first home fast.

Check out the top first time home buyer loans below.

FHA Loans – A Great Start

FHA loans have the ‘first time home buyer program’ reputation. Many people assume they are only for first time homebuyers and for a while they were. Today, they aren’t, but they do make a great first step if you need it.

What makes the FHA loan so great for first time home buyers?

The flexible guidelines and low down payment requirements are a start. Here’s what you can expect from FHA loans:

  • You only need a 3.5% down payment. On a $200,000 loan that’s just $7,000. That’s a lot less than the 20% down payment many assume you need.
  • Many lenders allow a credit score as low as 580. Conventional loans require scores as high as 620, so you can see the flexibility. A 580 credit score is considered fair to many. As long as you have a decent recent history (last 12 months), you are a good candidate.
  • Family or close friends can provide the down payment. The FHA doesn’t require you to put any funds in if you have at least a 580 credit score. Your mom and dad can gift you 100% of the funds and you’d still qualify.
  • Your debt-to-income ratio (comparison of your monthly debts to your gross monthly income) can be as high as 43%. Sometimes lenders allow up to 55% DTI if you have other stable qualifying factors.
  • FHA loans require an upfront mortgage funding fee plus annual mortgage insurance. You’ll pay 1.75% of the loan amount upfront. You’ll also pay 0.85% of the outstanding loan amount annually, but split into monthly payments. You pay mortgage insurance for the life of the loan.

FHA loans are a great first time homebuyer program if you don’t have a large down payment and don’t have perfect credit. Many first-time homebuyers fit in this category, which is why it has the first-time buyer’s reputation.

Conventional Loans – Good for Buyers with Great Credit

If you’ve established your credit history and it’s great (620 or higher but more realistically 680 or higher), the conventional loan may not be out of reach. Many people assume you need a 20% down payment, but you don’t. Conventional loans allow down payments as low as 5%, and even 3% in some cases (we’ll discuss this below).

How can first-time homebuyers benefit from the conventional loan?

Here’s what to expect:

  • A 5% down payment is enough for a conventional loan. On a $200,000 loan, you’d need $10,000 down. While 20% is great, it’s not necessary. You’ll pay Private Mortgage Insurance until you owe less than 80% of the home’s value. You can request cancelation as soon as you hit that milestone.
  • High credit scores create lower interest rates. Lenders offer risk-based pricing. Borrowers with higher credit scores get the lower interest rates. If you have a lower credit score (within reason), you may still qualify, but with a higher interest rate. Most conventional rates are competitive, though, so you’ll still have an attractive rate.
  • Family and close friends can provide your down payment. Lenders allow you to accept 100% of the down payment as a gift. They may still check your bank accounts to make sure you can afford the closing costs and/or to pay the loan, but the down payment doesn’t have to stop you from buying a home if you have help.
  • You typically need a 43% total debt. This is a bit tougher than the FHA. If you have minimal debts though, it’s possible. Some lenders offer more flexibility in this area (up to 50% DTI), especially if you have great credit.

Fannie Mae HomeReady and Freddie Mac Home Possible

Do you have great credit, but low income? Do your credit scores qualify you for a conventional loan, but you lack the down payment?

The Fannie Mae HomeReady or Freddie Mac Home Possible may be a great alternative first time home buyer program. These conventional loans are for borrowers with low to moderate income that are also first time home buyers. HomeReady and Home Possible borrowers cannot make more than 80% of the area’s median income.

Both programs allow just 3% down on the home (that’s less than the FHA) loan. Often times, you can take advantage of the low rates (than regular conventional loan) and make a low down payment.

VA Loans – A Mortgage for Veterans

Veterans that served in the military or currently serve have an amazing program available. This is a great first time home buyer program, but is also great for subsequent buyers.

The VA loan offers the following:

  • You may not need a down payment. The VA allows borrowers to finance 100% of the home’s sales price. This saves you thousands of dollars and helps you own a house a lot faster. All you have to worry about is the closing costs.
  • The VA doesn’t have a minimum credit score requirement. Many lenders want at least a 620, but it varies by lender. Even a 620 credit score, though, is flexible and lower than what conventional lenders require.
  • Sellers can help with the closing fees. If you don’t have the funds for the closing costs, you can negotiate the costs in the sales contract. Sellers may pay all of your closing costs – the VA doesn’t limit how much they can pay.
  • You can roll the VA funding fee into your loan. If you can’t pay the 2.3% of the loan amount funding fee, ask to roll it into your loan. Even if the funding fee takes your loan over 100% of the home’s value, the VA allows it.
  • The VA loan doesn’t require mortgage insurance even with no down payment. You’ll pay the upfront funding fee and that’s it for VA loans.
  • The VA has flexible debt ratio guidelines. Many lenders require a maximum 43% debt ratio, but some may allow a DTI higher than 50%.

 USDA Loans

The USDA loan is a great first time home buyer loan program. It has a few more eligibility requirements, but if you meet them, it offers great financing terms.

First, let’s cover the eligibility requirements:

Now, what do USDA loans offer? Here are the details:

  • You may not need a down payment. First time home buyers can borrow 100% of the home’s sales price. This may save you thousands of dollars and allow you to own a home faster.
  • You need at least a 640 credit score. This is higher than the FHA requirement, but if you have it and live in a rural area, you can buy a home with no money down.
  • If the home appraises for a higher value than you offered, you may roll the closing costs into the loan. You may come to the closing with no money out of your own pocket if you’re lucky.
  • You can roll the USDA upfront funding fee of just 1% of the loan amount into your loan. You’ll still pay an annual USDA mortgage insurance fee of 0.35% of the balance, which is much lower than the FHA’s rate of 0.85%.
  • The USDA has strict debt ratio maximums of 41% (often higher is allowed with other qualifying factors), which is lower than the VA and FHA loan, but it does have more flexibility with closing costs and down payments.

First time home buyers have many programs to choose from. Don’t assume you need a 20% down payment or perfect credit – there are programs for everyone. These first time home buyer program help you get into your dream home with little money out of pocket and/or great interest rates.

Even the loans with no down payment requirements have competitive interest rates. Why not buy a home with these great programs now? You can always refinance when you have some equity and/or great credit down the road. In the meantime, enjoy the chance to own a home with a mortgage with great terms.

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Still Not Sure Which Mortgage Type You Need?

If you’re still not sure, we can help. Take a quick survey below for a recommendation!

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Possible loans: Conventional and FHA loans.

Since your credit is good or better, you're a good candidate for both FHA and Conventional loans!

Keep in mind, FHA requires Mortgage Insurance even if you put more than 20% down so your mortgage type depends on Mortgage Insurance rate and how much down payment you're willing to pay.

Take the next step with our Easy Purchase Qualifier below!

Possible loans: Conventional and FHA loans.

You may qualify for both FHA and Conventional loans provided that your credit score is at least 620.

However, Conventional loan rate may be considerably higher than FHA loan. 

But if you put 20% or more down payment, there is no Mortgage Insurance with Conventional loan and your payment may be less than FHA loan.

Take the next step with our Easy Purchase Qualifier below!

Possible loans: FHA & other government loans.

Since your credit is Fair to Poor, you may be limited to FHA or other government loans only.

FHA requires minimum 580 credit score for 3.5% down payment and minimum 500 credit score with 10%+ down payment.

Good news is that FHA interest rates are typically slightly better than conventional rates to begin with.

Also, Mortgage insurance rate is the same whether you have good credit or poor credit

Depending on your current home value and principal balance, rate and term refinance may still lower your monthly payment.

Take the next step with our Easy Purchase Qualifier below!

Possible refinance loans: FHA & other government loans.

Since your credit is Fair or Poor, you may be limited to FHA & other government loans.

While this may sound discouraging to some, it's really not.  Especially if you already have FHA loan.

Take the next step with our Easy Refinance Qualifier below and see how much you can save per month!

Possible refinance loans: Conventional and FHA loans.

Since your credit is Good or Better, you may qualify for both Conventional and FHA loans.

Keep in mind, if your Loan-To-Value is 80% or less, Mortgage Insurance is not needed for Conventional loan.  This can save you hundreds of dollars every month.

Take the next step with our Easy Refinance Qualifier below and see how much you can save per month!

Local Las Vegas loan officer who is passionate about funding your American dream. Serving the local market since 2003, my number one goal is to ensure you choose the right loan program and offer you the best mortgage rate possible. Building lasting relationships found on trust, honesty and reliability.

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