Tips For Qualifying As A First Time Homebuyer

first time home buyers

first time home buyersCountless potential first time home buyers put off getting a mortgage because they think it is a long and cumbersome process. In 2018, a lot of new mortgage programs have become available so first time home buyers can qualify for a loan much easier than before. FHA loans are a commonly used first time home buyer loan for buying a home.

The primary reason why FHA loans are very popular is due to their low credit and down payment requirements. Borrowers who have a bad credit score of 500 can still qualify for an FHA loan with a 10% down payment. But, if the FICO score is below 580, no lender will approve a borrower.

In case you have a score of less than 580, you need to improve your credit score first before you apply for a mortgage. If you have a credit score of exactly 580, you will be required to pay a 3.5% down payment for an FHA-insured mortgage loan.

Get A Copy Of Your Credit Reports

The first thing you have to do is to obtain copies of your credit report from all three major credit card bureaus. You can also visit, which is a government operated site, to get a free copy of your report. You can only do this on this site once per year.

You also need to know what your credit scores are. Go to the websites that provide you your reports and scores for free. A few good sites to visit are Credit Karma, Credit Sesame, and Wallet Hub

Check Your Report For Errors

When you have obtained all three reports, go through each of them to make sure that there are no errors. In case you find some, get in touch with the credit bureau right away and file a dispute.

What To Look For:

–    Incorrect employers

–    Previous and current addresses and phone numbers

–    Incorrect account information

–    Accounts that you do not own

–    Late payments that shouldn’t be there

–    Unauthorized credit injuries

You can argue incorrect information regarding your credit report by getting in touch with the credit bureau in writing, by phone, or online.

Check Your Credit Score

One of the deciding factors when it comes to securing a mortgage approval is your credit score. It is crucial to make sure that you have a high score before you submit an application. Credit Karma and Credit Sesame are some of the sites where you can check your credit score for free.

Increase Your Credit Score

Settle credit card balances – the amount of available credit that you are using is referred to as your credit utilization ratio. It is responsible for 30% of your FICO score. It is important that you pay down your balances to less than 15% of your credit card’s limit.

Don’t Apply For A New Credit – avoid applying for new lines of credit, loans, or credit cards. Once you apply for a credit, a hard credit inquiry will be conducted and reported to the credit bureau, which may lower your credit score. Additionally, you are adding debt to your credit report, which can affect your credit score negatively.

Pay Your Bills On Time – you have to pay your bills in a timely manner at all times. If you are going to be applying for a mortgage sometime soon, you have to make sure that you don’t make late payments. If it helps, set up auto pay for your bills payments.

Get Preapproved Before You Go House Hunting

Before you start your house hunting, you have to get preapproved for a mortgage first by speaking to a lender. A loan officer will evaluate your credit and confirm your income as well as your assets with your W2’s, bank statements, tax returns, as well as paycheck statements.

The majority of realtors won’t begin show you houses unless you have a pre-approval letter in hand. Furthermore, most sellers will not accept offers without the preapproval letter. Getting a preapproval is fast and simple. It can be done in just a matter of minutes. Be sure to bring with you important documents like 2 years of tax returns, 2-3 months of bank statements, proof of down payment, and W2’s and paycheck stubs.

Find Out If You Qualify For An FHA Loan

FHA loans have less strict requirements, making it perfect for first time home buyers who are looking for a loan that they’ll qualify for. The maximum loan to value ratio of an FHA mortgage is 96.5%, which means you just require a 3.5% down payment.

FHA Loan Benefits

–    Minimum credit score of 580

–    Low down payment of 3.5%

–    Down payment can be a gift

–    Down payment assistance programs are widely available

–    Low-interest rates

–    Accepts higher debt to income ratio

–    Fixed rate and adjustable loans are available

Determine Your Down Payment Options

The amount you need for the down payment when you buy a house will be based on the type of mortgage you get.

First time home buyers usually have less cash savings which make low or no down payment home loans extremely popular. FHA loans just need 3.5% of the purchase price as the down payment, making it a very attractive option for those who are buying a home for the first time.

You can avoid mortgage insurance if you don’t have 20% down payment by getting a conventional mortgage. Listed below are a few down payment requirements for every kind of home loan:

–    FHA Loans – 3.5% and a 580 credit score

–    VA Loans – No down payment required

–    USDA Loans – No down payment required

–    203k Loans – 3.5%

–    Conventional Loans – 5% – 20%

–    Conventional 97 – 3%

Hire A Reputable Real Estate Agent

There are a few first time home buyers who think they are doing themselves a favor by not hiring a real estate agent. Don’t be one of them. Always remember that the realtor is paid by the buyer, and the cost is already included in the price of the home. An experienced and reputable realtor will not just help you through the home buying process but also negotiate a good price on your behalf. He or she will always be looking out for your best interest.

Budget For All Home ownership Cost

There are several costs invoiced when it comes to getting a mortgage apart from the house. There’s the mortgage insurance, homeowners insurance, closing costs as well as the HOA fees.

MIP or mortgage insurance is required for FHA loans regardless of the amount you paid for your down payment.

MIP on FHA loans costs between 0.80% to 1% based on the size of the loan as well as the down payment.

In case you have a minimum of 20% as down payment, you must consider a conventional loan, which does not need private mortgage insurance or MIP if you pay at least 20% down payment.

Determine Your Debt To Income Ratio

Your debt-to-income ratio or DTI is the amount of monthly income compared to your debt payment obligations on a monthly basis. This will include things like car loans, credit card payments, and so on.

Front-end DTI ratio is the ratio of your income to debt payments, excluding the mortgage loan. For instance, if you have a gross income of $5,000 per month, and your total payments reach $1,000 per month, then your front-end ratio is 20%. The maximum front-end DTI ratio is 28%.

Back-end DTI ratio is the income compared to your debt payments after including the mortgage payment every month. For instance, if you have a pre-tax income of $5,000 and your mortgage loan and debt payments reach $2,000, then your back-end ratio is 40%. The maximum is 41%. But in some cases, this ratio can reach up to 50%.

Check Programs and Grants For First Time Home Buyers

There are several down payment assistance grants and programs for first time home buyers. HUD has several local state programs that provide first time home buyers help with their down payment when purchasing a home.

You will also find local programs on your counties or city website. A few of these programs might need you to take a home buyer education class for eligibility.

HUD Programs

Good neighbor next door program or GNND – was created by the U.S. Department of Housing and Urban Development to assist law enforcement, teachers, medical and emergency technicians to become homeowners by providing them 50%the list price of HUD homes that are found on

One Dollar Program – is offered by HUD allowing local government to buy HUD homes listed at $25,000 or below that have been for sale for at least 180 days for one dollar. These houses can be offered to families with low income in an effort to revitalize their neighborhood.

Know What Loans Are Availble For First Time Home Buyers

People who are buying homes for the first time have several loan options other than the FHA loan. Based on your current situation, you might be eligible for a few other loan programs that provide advantages compared to FHA home loans.

Conventional Loan – in case you have a minimum of 20% down payment then you have to consider a conventional mortgage. FHA will require mortgage insurance regardless of your down payment. If you have a 20% down payment, then you will not be asked to carry PMI, which will help you save thousands of dollars annually.

Conventional 97 Loan – this type of loan was created by Fannie Mae so as to compete with the low down payment offered by FHA loans. With only a 3% down payment and a credit score requirement of 680, you can be eligible for the conventional 97 programs.

VA Loan – if you are a Veteran, you can get a VA loan. It does not need mortgage insurance or down payment, which means this option is the easiest type of mortgage today.

USDA Loan – this program was created by the US Department of Agriculture to assist low-income home buyers in rural places of the country save money on their mortgage. If you are in a location that is eligible for a USDA loan, then you might be eligible. It does not need any down payment and its mortgage rate is just 0.35%.

203 Loan – in you are considering the purchase of a fixer-upper then there’s a renovation FHA Loan referred to as a 203k loan. You can purchase a home that requires repairs and obtains a loan for the purchase of the house and the cost of the home improvements and repairs required.

Fannie and Freddie 3% Down Loan – the two biggest buyers of mortgage loans are Fannie Mae and Freddie Mac. They launched a 3% down payment program referred to as the conventional 97 mortgages so they can compete with the FHA loans.

FHA Energy Efficient Mortgage or EEM – assists borrowers in financing the home purchase and provides extra cash to for energy efficient improvements on the property.

Other Important Information

Who Is Considered As First Time Home Buyers?

In order to be considered as a first time home buyer, you should not have any homeownership over the past 3 years.

Do You Need A Down Payment?

There are programs that do not require down payment like USDA and VA loans. However, they can also be obtained by existing homeowners. There’s no kind of loan specifically for first time home buyers that do not need a down payment.

Which Loan Is Best For You?

First time home buyers have different needs when it comes to home loans. A certain type of loan may be ideal for one but not suitable for another.

However, the most popular home loan that are used by most first time home buyers these days are FHA loans. They have low down payment requirements and less strict qualification guidelines.

What Credit Score Qualifies For An FHA loan?

The Federal Housing Administration requires a credit score of at least 500 and a 10% down payment. If the borrower has a higher credit score, at least 580, then they will insure the loan with only a 3.5% down payment.

Key Takeaways

Purchasing a house for the very first time does not have to be a scary experience. Just follow the tips discussed above, work with a reputable Myrtle Beach real estate agent and loan officer and the process will surely run seamlessly.

Call Full Potential Real Estate, LLC  if you need the professional assistance of a real estate agent in buying a home. 

Full Potential Real Estate, LLC
Myrtle Beach, SC 29577

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