Buying a house for the first time starts with gaining a solid understanding of the process. Transitioning from renting to owning is achievable with the help of experienced and professional partners. First-time homebuyers should begin by researching lenders and connecting with a licensed loan originator. Next, a prospective homebuyer should prepare to discuss their income, assets and home buying goals with their lender. First-time homebuyers should expect to provide personal information and financial information for review during a pre-approval process. The pre-approval process will help a first-time homebuyer know how much home they can afford before they begin house hunting. After getting pre-approved, a first-time homebuyer should research properties that fit within their budget.

Frequently Asked Questions

What Are First-Time Homebuyer Benefits?

Some of the most common benefits offered to first-time homebuyers during the mortgage process include low to zero down payment options, more flexible credit requirements, less stringent debt-to-income eligibility ratios, and even discounts on additional fees, like closing costs. In addition, there are some federal and state credits, grants and tax benefits offered exclusively for first-time homebuyers, such as origination fee reductions or down payment and closing cost assistance programs.

What Do First-Time Homebuyers Need to Know Before Buying?

Before starting the homebuying and mortgage application process, first-time homebuyers should keep in mind these helpful tips.

First, check your credit score, improving your credit score before applying for a mortgage can help you to qualify for a lower interest rate and could help you increase overall affordability.

Next, consider fixed-rate and adjustable rate loans and compare different terms based on your financial goals.

Third, obtain a pre-approval from a licensed loan originator before house hunting; this can make sellers see you as a more attractive buyer.

Lastly, once your mortgage application is submitted, avoid buying furniture on credit or using credit cards to make other large purchases; this could negatively affect your credit score which could jeopardize your loan in its final stages.

How Do First-Time Homebuyers Qualify?

Qualifying factors for first-time homebuyers will vary based on the mortgage program and lender they choose. Usually at minimum, first-time homebuyers need to provide proof of reliable income. In addition, depending on the loan program, first-time homebuyers should also have at least a fair or good FICO score, typically 580 or higher, and a debt-to-income (DTI) ratio that conforms to certain mortgage underwriting guidelines. An experienced loan officer can help you learn your DTI. Although there are low and no-down payment options for many first-time homebuyer mortgage programs, first-time buyers should prepare to save some funds toward a down payment, closing costs, taxes and moving costs.

How Much Down Payment Does a First-Time Homebuyer Need?

There are many down payment options available for first-time homebuyers. First-time homebuyers are not required to make a 20% down payment on a home, unless they choose to do so. In fact, many homeowners are approved for mortgages with down payments below 10%. There are many first-time homebuyer mortgage programs that offer a minimum down payment as low as 3.5%. There are also low and no down payment mortgage loan options available for first-time homebuyers. Some of the loan programs that offer these attractive down payment requirements are FHA loans, USDA loan, VA loans, and specific conventional loan programs from Fannie Mae and Freddie Mac.

What First-Time Homebuyer Programs Are Available?

There are a variety of mortgage loan programs available for first-time homebuyers. First-time homebuyer programs from the FHA, VA, various renovation loans such as the FHA 203K and Homestyle, and even certain conventional loan programs like HomeReady and HomePossible can help first-time homebuyers achieve their financial goals. In addition to the government and conforming conventional loan options below, additional first-time homebuyer programs vary from state to state, based on local incentives and offers.

FHA Loans

FHA loans are administered by the Fair Housing Administration. According to Ellie Mae, 26% of all Millennials who purchased a home in 2019 used an FHA loan. FHA loans have remained a popular mortgage loan option among first-time homebuyers because of two key benefits. FHA loans have lower requirements for both required credit scores and down payment thresholds for mortgage loan borrower approval. Compared to other loan programs, it is easier for a prospective homebuyer with less savings and a credit score below 700 to acquire a mortgage loan approval with an FHA loan.

VA Loans

The Department of Veterans’ Affairs is a government agency that provides access to a unique, specialized mortgage loan program for Veterans, military service members, and their immediate families. Also known as a military home loan, the VA loan is a mortgage loan that is issued by private lenders and backed by the VA.

For first-time homebuyers who qualify, a VA home loan could help them achieve their dreams of homeownership. The VA loan offers three benefits that are very attractive to first-time homebuyers seeking lending options. The VA home loan provides a zero-down payment option, has lower minimum requirements for credit scores and debt-to-income ratio, and offers loan approval for higher loan limits compared to conventional loans.

Additionally, because the loans are secured by the government, typically VA loans have lower interest rates compared to conventional loans. The less stringent eligibility requirements coupled with a competitive interest rate make VA loans a great lending option for many first-time homebuyers.

Renovation Loans

Some first-time homebuyers encounter challenges when they try to enter housing markets with limited inventory. Entry-level or starter homes are becoming scarce in many states. The homebuying search process for many first-time homebuyers often means accepting you might not find your perfect home, but you may be able to build it.

For first-time homebuyers open to buying a house that may need some repairs, a renovation loan could be the perfect loan for their housing needs. A renovation loan allows a borrower to buy a home and renovate it all within one loan. Specifically, a renovation loan typically combines the cost of repairs or construction with the cost of the mortgage. For most renovation programs, this allows for a borrower to make single monthly payments with one interest rate instead of having multiple loans.

Renovation loans do not require a minimum 20% down payment, and in some programs offer down payments as low as 5%-10% down. There are a variety of renovation loans that provide benefits to first-time homebuyers, such as the FHA 203K, Fannie Mae Homestyle, and USDA rural development home repair loans.

Conventional Loans By Fannie Mae And Freddie Mac

Government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac have two conventional loan programs that many first-time homebuyers find useful when working towards their goals of homeownership.

HomeReady by Fannie Mae is a loan program that offers similar benefits to the FHA. To be eligible for a HomeReady loan, first-time homebuyers can have up to a 50% debt-to-income ratio and a credit score as low as 620. This loan was specifically designed to benefit low to moderate-income homebuyers. HomeReady also offers a 3% down payment option if at least one borrower is a first-time homebuyer.

Home Possible is Freddie Mac’s flagship affordable mortgage loan program. Similar to HomeReady, borrowers can be approved for a loan with as little as 3%-5% down.

Your Home is Your Best Investment

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