Buying a home can be a very exciting and overwhelming process, especially if it’s your very first home. One of the first questions any buyer must ask themselves is, “How much home can I afford?” Often, the second question is, “How will I be able to come up with a down payment?”
Luckily, there are programs specifically created to help first time home-buyers achieve the dream of home ownership.
Loan Programs & Down Payment Assistance There are specific loans available for first time home-buyers. These loans are designed to offer lower down payment requirements.
- Federal Housing Administration: FHA loans generally require a lower minimum credit score and allow a higher debt ratio than conventional and VA loans. Monthly mortgage insurance is mandatory, and the minimum down payment is 3.5 percent of the loan amount. Closing costs may be rolled into the mortgage, which reduces the out-of-pocket settlement costs.
- Fixed-Rate Conventional: Conventional loans are suitable for borrowers with typically high credit scores and sufficient assets to pay a minimum five percent down payment. Borrowers who put 20 percent down avoid the expense of monthly mortgage insurance.
- Veterans Affairs: VA loans are available to qualified veterans and active military personnel. These loans have no monthly mortgage insurance and no required down payment for loan amounts less than $417,000. Credit score requirements are usually lower for a VA loan than for a conventional mortgage.
Government money may be available to assist first-time home buyers with closing costs and down payment funds. Speak with your Mortgage Loan Originator for more information.
Borrower Qualifications Loan approval depends on a number of factors. Lenders consider all the following items before agreeing to fund a loan but may not be limited to just these items listed below:
- Credit Score: When potential loan applicants have a higher credit score, they can qualify for lower interest rates on a loan. A higher score shows the lender that the borrower has a history of making payments on time. Potential applicants should confirm their credit score before applying for a loan.
- Debt and Income: Lenders will determine a borrower’s ability to pay current expenses as well as a monthly mortgage payment by examining the borrower’s debt to income ratio. There are mortgage calculators that can help determine how much a borrower can afford to pay each month.
- Employment History: Lenders generally require borrowers to have a minimum two-year work history. A history of consistent employment proves that the borrower can maintain consistent income to make monthly mortgage payments.
- Assets: Borrowers may need sufficient funds to cover two months of mortgage payments, a home inspection, appraisal, annual home insurance policy premium, lender fee, down payment, title insurance and other closing costs.