How To Choose A Mortgage As a First Time Homebuyer

Buying your first home is exciting. But it can also come with a number of potentially stressful challenges, especially if you’re worried about having enough money to buy the home of your dreams.

Getting a mortgage as a first-time homebuyer might seem daunting, but it doesn’t have to be. 

With so many mortgage options for first-time homebuyers, you can choose the best one for your situation. 

Keep reading as we dig into a few things to make your first home buying process simpler and straightforward. 

Start By Checking Your Credit Score

Your credit score and overall credit history play an important role in determining which mortgage you will qualify for as a first-time homebuyer. 

The better your credit rating, the better your interest rate will be, and the more mortgage options you have. 

Your credit report contains information about your credit and payment history. Credit reporting agencies collect and gather your credit information, putting it into a report that lenders use. 

Mortgage lenders then use your credit report to determine whether they should approve your loan and the best interest rate they can offer you. 

In addition, credit reporting agencies use the information in your credit report to figure out how likely you are to repay your mortgage, in full and on time.

To put yourself in the best position, start by requesting your credit report about six months before you plan to buy a home, from one of the three main agencies: Equifax, Experian, and TransUnion

Each agency maintains a separate report, and you can get a free report once a year from each one. Check each report for any errors or mistakes. If you notice anything negative, you can reach out to the creditor to fix or update the information.

Secure a Mortgage Pre-Approval

Before you begin looking at homes, it’s good to get a mortgage pre-approval. 

With mortgage pre-approval, you can find out how much you can easily afford to spend on your home. You’ll also put yourself in a position to jump on the perfect house when you find it. 

This can be especially important in a competitive real estate market as some sellers won’t accept an offer without mortgage pre-approval.

Once the seller accepts your offer to buy, you’ll work with your licensed mortgage broker to finalize the actual mortgage approval. This is when you’ll have to provide documentation and information about your income. 

Check Out Different Types of Mortgages for First Time Homebuyers 

It’s never been better for first-time homeowners looking at mortgages. You’ll find that different mortgages offer a variety of down payment options, making it easy to budget for your first home purchase.

FHA Loans

FHA mortgages are home loans that are guaranteed by the Federal Housing Administration

Because a government agency backs these mortgages, there is less risk to the lender, which translates into better interest rates, more flexible borrowing requirements, and lower interest rates for first-time homeowners. 

FHA mortgages offer several advantages especially beneficial to first-time homebuyers, including:

  • a lower down payment than many other mortgages (3.5% of the price of the house. For example, with an FHA loan, a home listed for $150,000 will require $5,250 for the down payment.)
  • Some of the lowest interest rates available today
  • Reduced credit score requirements compared to other mortgage home loan programs

To take advantage of the FHA 3.5% down payment option, borrowers generally need to have a credit score of at least 580. If your credit score is under 580, you can still qualify for an FHA home loan with a 10% downpayment.

FHA loans do require borrowers to pay mortgage insurance at closing, as well as annually.

VA Loans

If you or your spouse are an active military service member or veteran (or if you are a surviving spouse of a military service member), a VA mortgage loan is an ideal way to become a first-time homeowner. 

The Department of Veteran Affairs (VA) guarantees VA loans in the same way as the Federal Housing Authority backs the FHA loans, and they offer a great range of benefits for first-time homeowners, including:

  • No down payment requirement
  • No mortgage insurance
  • Low interest rates
  • Reduced closing costs which can be rolled into the total loan amount. Borrowers can also ask sellers to pay closing costs under the VA loan program.
  • Flexible credit score requirements.
  • Borrowers can use VA loans over and over again during their lifetime.

Not all lenders are approved by the Department of Veteran Affairs. So if you’re interested in applying for a VA loan, look for a VA-approved lender, like the VA loan specialists at River City Mortgage.

Conventional Mortgage 

A conventional mortgage is the most popular home loan choice for homebuyers because of its options for first-time home buyers with good credit. 

The stronger your credit rating, the greater the options you get with a conventional mortgage.

While conventional mortgages generally require higher credit scores to access the benefits, they do offer several valuable advantages for first-time homebuyers, including: 

  • A downpayment of 3% of the price of the house
  • No mortgage insurance (if you have a downpayment of 20% or more)
  • No out-of-pocket closing cost options.
  • Fewer fees

The trick to making buying a home enjoyable and less stressful is to take your time and choose the right mortgage product to fit your situation. 

It might be tempting to apply for a particular mortgage because your friends have had success with that program, but no two mortgage applications are alike. 

When you partner with the licensed loan officers at River City Mortgage, we help you navigate the various mortgage processes with ease. We want to answer any questions you have about which mortgage is best for first-time homebuyers and help you determine how much of a mortgage you will qualify for.

Photo by Dillon Kydd on Unsplash

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