Buying your first home will almost always be overwhelming. It is as exciting as it is confusing and nerve wrecking, especially if you don’t have enough savings to make cash purchase and have to rely on loans. And while the banking industry if rife with lenders and financial service providers that are willing to grant you a first time home buyer loan, identifying a lender with the most favorable terms like low interest rates and down payments can be an uphill task
Nevertheless, we encourage that you take your time going through the different loan options available to you, and understanding the property market as this can help you save significantly. And it starts with understanding the different types of loans available to first time buyers and the minimum qualifications required.
In this guide, we compare some of the best commercial loans and mortgages for first time home buyers and their alternatives. But first, we look at why you should consider taking up a home buyer loan.
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Why should you take a home buyer loan?
I. Speeds up the process of home ownership
A loan for the first time home buyer goes a long way in speeding up your home ownership. The low minimum deposit required to qualify for the loan is particularly handy as it ensures that you don’t spend years on your savings.
II. Some don’t require a loan down payment
There are special loan types that don’t require a loan down payment. These include special loan programs designed to help such special groups of individuals like veterans who benefit from VA loans that either don’t need significant down payments or don’t need one at all.
III. Low interests and monthly installments
The repayment of most home loans is spread over long periods of time – as much as 30 years. And this effectively brings down the loan amounts due per month to affordable levels. This is unlike personal loans that have shorter repayment periods and high interest rates that translate to higher monthly installments.
IV. Access to discounts and better rates
Most banks tend to offer discounted rates and fees to their customers. You can also benefit from better rates despite having a bad credit score. Some lenders use alternative credit data to approve borrowers. Others also offer lower rates for agency-backed loans and down payment assistance programs.
What are the pros and cons of the different first time home-buyer loans?
Criteria used to rank the best first time home-buyer loans:
- Type of loans offered
- Qualification requirements
- Customer support
- Amount/percentage of down payment required
- Interest rates
- Maximum loan amounts
- Availability – nationally or state-based
Best first time home-buyer loans [current_date format=Y]: Summary
Best first time home-buyer loans [current_date format=Y]
1. Quicken Loans - best overall
Quicken Loans is one of the most reputable lenders offering first time home-buyer loans in the US. They also offer a wide range of financial products just like any other bank. Quicken loans have one of the most reliable customer support and even more convenient services. For instance, you can apply for the first-time home-buyer loan online. But first ensure that you meet their minimum qualification requirements that include a credit score of 620 and that you are able to pay a 3% down payment of your home buyer loan advanced.
- Offers both online applications and real mortgage advisors
- Offer fixed-rate loan terms from 8 to 30 years
- Offers USDA and FHA backed loans as well as Freddie Mac and Fannie Mae
- Does not look at other credit data apart from score
- Does not offer home equity loans
2. Flagstar Bank - best for low down payments
As a bank, Flagstar offers a wide range of home loans including fixed and adjustable loans, mortgage refinancing, home equity financing and jumbo loans among others. They also offer a full range of financial services and products. Flagstar Bank also embraces FHA backed loans and requires a low down payment of only 3%. However, you must have a credit score of 620 and above to qualify for the first time home buyer loans with the Flagstar Bank.
- Offers HELOCs (home equity line of credit) and home equity loans
- They embrace FHA, USDA and other government agency-backed loans
- Professional loan product suited to the needs of doctors, lawyers, certified accountants, and other professionals
- Charges a $1000 origination fee which is a lot
- Strict on qualification
3. New American Funding - best for low interest rates
New American Funding is among the best lenders offering loans for first time home buyers. Their offer is ideal for borrowers who do not fit the traditional model for bank mortgages. It focuses on people with non-traditional credit and also works with down payment assistance programs, grants, as well as FHA and VA, backed loans. Like most offers, you need to have a minimum credit score of 620 and the 3% down payment.
- They evaluate creditworthiness through manual underwriting
- Offers complete online mortgage application, documents uploading and loan tracking
- Easy to qualify for a loan
- Services only available in some states
4. Homebridge - best for borrowers with poor credit scores
Homebridge is another reliable lender suited to borrowers who love operating online. They offer a variety of home loaning products and online applications to facilitate them. Homebridge requires a minimum credit score of 550 and a 3% down payment in order to qualify for the first time home buyer loan. They are also licensed in all the 50 states.
- Offer several types of loans
- Low credit score for government-backed loans
- Offer extensive educational material on their site
- No online loan tracking
- Charges origination fees on some loans
- Limited branch locations
5. Citibank Mortgage - best for availability in all the 50 states
Citibank is a large-scale lender with numerous banking products. They boast of a wide variety of home loans including first time home buyer loans that suit those with weaker credits. They consider alternative credit data and also require a low down payment of 3%. Citibank customers can also enjoy discounts, plus the bank has branches all across the 50 states.
- Has low down payment offers
- Customers can get discounts
- Examines alternative credit data including childhood support and recent history.
- Charges mortgage/loan application fee
- No online application
- Charges a variable non-disclosed origination fees
6. Bank of America - best for discounted origination fees
Bank of America is ideal for customers who prefer the traditional mode of loaning. As one of the oldest banks, it offers a wide range of home loans, mortgages, and online management applications. The bank also requires a minimum credit score of 620 and a 3% down payment to qualify for first time home buyer loans. What’s more, they offer down payment and closing cost assistance.
- Online application is allowed
- Offer discounts on origination fees to customers of the bank
- Embraces government-backed loans, down payment and closing cost assistance
- Charges an average $1,170 application fee
- Has more customer complaints than other lenders
7. SOFI (Social Finance) - best for online home loan applications
SoFi is another popular lender that started off as an option for student loan refinancing. They have since extended their scope into other personal finances including first time home buyer mortgage loans. SoFi is reputed for low minimum requirements and their examination of alternative credit data. They use metrics such as valuable college degree and income potential. They also allow pre-qualification and fund loans within 30 days of application. Their main loans are 30-year and 15-year fixed loans.
- No origination fees charged
- Has low minimum requirements
- Considers alternative credit data for approval
- Few loan types
- No online loan tracking
- No branches
8. Chase bank - best for customer support
Chase Bank is one of the biggest banks in the world and has several mortgage products for borrowers. Its offers are suited to customers who prefer the traditional face-to-face interaction with a mortgage broker. They boast of over 5,300 branches and industry-leading online tools and mobile apps. Chase Bank simply makes managing and tracking your loan very easy. They also have exceptional customer service compared to other national banks.
- Has a wide variety of loans
- Applications can be completed online
- Offers traditional loan application
- Higher interest rates than most lenders
- Charge a loan application fee
- Uses traditional credit report data
9. Penny Mac - best for alternative loan approvals
Penny Mac is in no way related to giant lenders Freddie Mac or Fannie Mae. Nonetheless, you may want to check them out for FHA backed loans that come with low down payments. Penny Mac is a direct lender that has all its activities housed online. The loan application is pretty easy and they also offer a wide range of conventional and non-conventional home buyer loans including jumbo, VA, FHA and USDA loans.
- Low down payments and better rates
- Offer government-backed loans and down payment assistance
- Allows online loan application and management
- No physical branches available
- Not a popular name in the home lending business
10. Busey Bank - best for the most diverse types of loans
Busey Bank is another viable option if you are looking for first time home buyer loans. They allow loans backed by VA, FHA, and USDA. They are the biggest mortgage lenders in Missouri and provide a wide range of home loans with low down payments. With a history that stretches back to 1868, it is one of the longest-serving banks in the country. They are also reputed for great customer service and experience.
- Scores highly for customer service
- Various loan types available
- Supports FHA and VA loan programs
- Has higher rates
- Charges an origination fee for some loans
- No online loan application
Things to consider when choosing home buyer loan
I. Credit score and history
Most lenders look closely at the borrower’s credit score and financial history when making a loan judgment. Your credit score also impacts the interest rates you will attract. It is therefore important to ensure all entries in your credit report are accurate. You can also work on improving your credit score as you eye qualifying for better home buyer loans.
II. First time home buyer programs
When shopping for mortgage lenders, look specifically for first time home buyer programs. Some lenders have partnerships with state agencies to offer educational resources, down payment assistance and discounted rates to first-time buyers. There are different programs for veterans, those with student loans and public servant. You can also combine these benefits to get a more affordable solution to buying your first home.
III. Government-backed home loans
Besides state agencies, government departments also offer first time home buyer loans. Some examples include the USDA (US Department of Agriculture), VA (US Department of Veterans Affairs) and FHA (Federal Housing Administration). These agencies offer relaxed restrictions on income, down payment requirements and credit score to allow easier qualification.
IV. Interest rate and other fees
It is very important to compare the annual percentage rate to determine how much you will end up paying for the loan. You should also review other costs including loan application, appraisal, origination and title fees. These factors affect the closing cost and vary greatly from one lender to another. Read through all the details and make sure you get clarification on all areas of the agreement.
Pre-approval is one of the easy ways to determine how much you will be required to pay for a mortgage. When you get pre-approved, it also sends a message to sellers that they can accept and rely on your offer. Lenders have varying pre-approval options. Some allow you to upload documents and complete the loan application online. Others require a phone call or a visit to their physical premises. Simply compare your options and get preapproved for the loans you wish to borrow.
Alternative to commercial mortgages for first time home buyers
A VA Loan is a special class of house mortgage made available to service members through the United State Department of Veteran Affairs. The first qualification to applying for these loans is that you must be a service member, veteran or an eligible surviving spouse of a service member. You should however note that the U.S department of Veteran affairs doesn’t issue loans and mortgages. On the contrary, it acts as a guarantor to veterans on first home-buyer loans availed to members of their service.
The United States Department of Agriculture (USDA) Loan is specially designed to help rural and suburban dwellers looking to buy their first home gain access to loans and mortgage services. Initially, the USDA loan was only available to farmers in the country, but has since expanded its reach to cover both rural and suburban dwellers whose income levels would have otherwise prevented them from accessing these loan facilities. The USDA works by acting as a guarantor to no-down payment loans and mortgages provided by the commercial banks and other lenders. It also acts as a direct-lender to low- and very-low income applicants where interests here are as low as 1%.
The good neighbour next door loan program is a mortgage service available to such members of the community serving in the police force, teachers, and firefighters looking to buy their first home. It was rolled out by the Department of Housing and Urban Development and is availed to qualifying candidates through the Federal Housing Administration (FHA). Apart from working in these public service departments, you must also reside in deserving regions, mostly suburban areas facing shortages of public service workers. And some of the advantages of the program is that you will still qualify for a loan even when you have a poor to bad credit score. Plus you get to up to 50% off the home’s listing price and you only need to raise a negligible $100 down payment.
Ensure that you exhaustively compare all existing options before making a commitment. Read through the loan’s fine print to understand your responsibilities and expectations from the lender.There are numerous programs, grants, and loans available for first time home buyers. You can start by comparing the offers available in your town to find the best loans and rates. It is also recommendable to work on your eligibility and creditworthiness before applying for a home buyer loan. Besides improving your likelihood of qualifying, it will also help you attract better interest rates and offers. More importantly, look up customer reviews to gather insights about general concerns and their quality of service.
Glossary of Loan Terms
How much mortgage and loan can a first-time homebuyer gain access to?
If you are applying for a commercial mortgage loan, there is usually no limit to the loan amounts as long as you fit the eligibility criteria. If you use the alternative home loan and mortgage services, however, there is a limit to the price of a home most will guarantee. This, however, varies from one guarantor or state to another.
What are the minimum qualifications needed for a first time home buyer loan?
Basic qualifications for the commercial loans and mortgages as well as the special loans and programs include stellar credit history, stable income streams, ability to raise the down payment required and other associated costs like mortgage insurance and processing fees. There are however special programs dedicated to helping the vulnerable and special class of citizens who don’t meet all or some of these conditions gain access to funding.
What is the minimum credit score for borrowers looking for loans to buy their first home?
In most cases, the minimum credit score required for this starts at 600. This figure is however not set on stone and it is not surprising to find lenders and borrowers who have packaged their loans and programs to fit individuals with a poor credit score.
What factors affect the interest rate charged on my mortgage?
Your credit score and borrowing history, your income and ability to pay as well as the duration of the loan repayment, and the amount of down payment. High-income earners with an excellent credit score looking for shorter-term mortgages – probably 15years – and with a tangible down payment stand to benefit from reduced mortgage rates and vice versa.
How do I know that am ready to take up a first-time homebuyer loan?
You are ready to take up a first-time homebuyer loan if you are looking to own and not rent a house and that you meet all the loan qualification requirements. You are also ready to take up a mortgage if you fit the qualification criteria for the special loans and mortgage programs like a teacher living in an area that’s eligible for the good neighbor home loan or a veteran.
How do I access the best mortgage rates?
The secret to accessing the best mortgage rates lies not just in your ability to fit the minimum qualifications required. The qualifications must be matched with a tireless search for loans and negotiations with different lenders. In most cases, these loan terms are highly individualized thus the need to try and push the lender into affording you the best possible loan terms.