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Taking the first step on the homebuying process should be exciting—You can make your home your own in a neighborhood you love while fostering community-living. But starting this journey also comes with necessary extensive research and education. 

Understanding what mortgage options are available to you, getting help with your down payment and learning more about the home loan process are all imperative to your homebuying success.  

Read on to discover more about the mortgage journey and how you should prepare.

 

Options for First-Time Homebuyers 

As a first-time homebuyer, there are actually many loan types and programs available to you. Learning more about them can help you make a decision on the home financing that could work for your situation. 

Loan Types 

One of the most popular loans amongst first-time homebuyers is Federal Housing Administration (FHA) loans, which were created specifically for low to moderate income families. These loans generally have lower borrower qualifications for those in financial standing that don’t qualify for other types of loans.  

For example, if you have a credit score as low as 500, you may be able to pay a down payment of 10 percent. For those who have a credit score of 580 or over may be able to pay a down payment of only 3.5 percent.  

In comparison, conventional loans aren’t insured by a government agency like the FHA but can be a good option for those with strong credit and can pay a down payment of at least 3 percent. They’re also available for more property types and higher priced homes, you can have more control over your private mortgage insurance. Conventional loans also have more options for terms including 15-, 20- or 30-year mortgages. 

Depending on your own credit score and savings for a down payment, either of these options could work for the home you want to buy.

Programs 

Outside of FHA and conventional loans, you can look into a handful of programs specifically for first-time homebuyers. Typically, there are also state-specific programs you can look into. Here are a couple popular program options:

 

Support from Housing Finance Agencies (HFAs) 

Housing Finance Agencies are state-chartered non-profits that help provide services and financing for affordable housing. These vary by state, and you can receive education and legal help for both homebuying and renting. Keep in mind that not every lender has every HFA available, so make sure to double check with them if you want to utilize an HFA. 

You can find a list of HFAs on the National Council of State Housing Finance Agencies’ website. 

Conventional 97 Mortgage 

This conventional loan allows eligible first-time buyers to borrow up to 97 percent of the home’s value, meaning you’ll need to pay a 3 percent down payment.  

Good Neighbor Next Door 

Sponsored by the U.S. Department of Housing and Urban Development (HUD), this loan is offered specifically for emergency medical technicians, firefighters, law enforcement and teachers and offers 50 percent off specific HUD properties. 

HomePath® Ready Buyer™ Program 

Specifically for first-time homebuyers, Fannie Mae’s HomePath® program allows borrowers to buy a foreclosed property for as little as 3 percent down. 

Nonprofit Programs 

Programs like Habitat for Humanity® or Neighborhood Assistance Corporation of America® (NACA) could be a good option for low- and moderate-income borrowers or who need alternative ways to qualify such as rent payment history instead of credit scores. 

Employer-Sponsored Programs 

Some employers have programs in place to help employees cover homebuying costs. These can be limited to certain careers and areas near the workplace.  

Homebuyer Education Programs 

If you’re just looking for resources about homebuying in a more interactive way, first-time homebuying classes could help teach you about the basics.

  

Managing Your Finances 

Taking the time to get your finances in order is a must before you even start looking at properties.  

Credit Score 

Pay attention to your credit score and credit reports and ultimately, take care of it throughout the homebuying process. This includes paying your bills on time, using less of your credit and not opening new credit accounts. 

Down Payment 

It could be a good idea to consider saving for a down payment and working it into your budget. Generally, the more you save for a down payment, the lower your monthly mortgage payments and you may be able to avoid paying for private mortgage insurance (PMI). 

Debt 

Try to pay down your debt as much as possible. Debt-to-income (DTI) ratio is often a factor when lenders qualify you for a loan. You will typically want to have a DTI ratio of 43 percent or less. 

Closing Costs 

Often forgotten, closing costs are fees and expenses required to finalize the home loan. On average, they could cost anywhere from 3 to 6 percent of the loan amount.

 

Are You Ready to Become a Homeowner? 

Resources for first-time homebuyers are vast. You just need to look for them.  

Whatever your needs are, researching mortgage types, processes and programs can keep you knowledgeable about what’s available to you and feasible for you. Reputable mortgage professionals can also help make the loan process easier, especially for the first time you buy a home. Remember to keep your eyes on the goal: Your dream home. 

 

This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information on financial planning or investment advice, consult a registered investment advisor or financial planner.

This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to your individual situation.

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