7 LOANS for FIRST-TIME HOMEBUYERS

7 LOANS for FIRST-TIME HOMEBUYERS

Thinking about purchasing your first home? Curious what types of loans are available for first-time homebuyers? Or, if you qualify? 

Here is what you need to know.

As a first-time homebuyer you may be feeling a bit overwhelmed about where to start, what loan programs are available and what it all means. Or maybe you don’t think you will qualify for a loan because you have ‘bad credit’. 

Different loans offer different benefits. Some loans are designed specifically for people who have low credit scores and other loans offer low down payment options. Here is an overview of the different types of loans available for first time homebuyers of all types. Let’s ease your first-time home buying fears. 

1. FHA Loan: Lower Credit Scores
FHA loans are ideal for first-time homebuyers with a credit score as low as 500. First-time homebuyers under this loan may qualify for a down payment as low as 3.5%. FHA loans are fixed rate mortgages and backed by the government.

The Catch: FHA Loan Limit is $356,362 for a single family residence as of 2021.

The Cons: Buyers usually pay a higher interest rate.

Borrowers pay Mortgage Insurance which protects the lender if the borrower defaults on the loan. However, the mortgage insurance will go away once 20% of equity is met. 

*FHA 203k Loan: Purchase & Remodel

Ideal for First Time Homebuyers who purchase and want to remodel or improve their home. All other FHA information and guidelines are the same as the FHA Loan above.

The Catch: All renovations can't exceed $35,000 and must be more than $5,000.

2. VA Loan: Military Members 
This loan is for Active Duty, Veterans, or Spouses. The VA loan offers no down payment and lower interest rates. This loan doesn't require a minimum credit score and does not require mortgage insurance. The VA loan is guaranteed by the US Department of Veteran Affairs (VA). In order to qualify you need to obtain a VA Certificate of Eligibility. 

The Catch: You must have been honorably discharged to qualify.
                   Most lenders have minimum credit score requirements to finance buyers.

The Con: Borrowers will pay a funding fee. 

More information about VA Loans can be found here.

*VA Native American Direct Loan
This loan is specifically for Native Americans who are first-time Homebuyers and                are Active Duty, Veterans, or for their Spouses. The Native American Direct Loan                (NADL) program helps Native Americans buy, build, or improve a home on Federal            Trust Land. 

For more information and qualification guidelines about the

Native American Direct Loan, click here.

3. FHA/VA Energy Efficient Mortgage:
This loan is ideal for first-time homebuyers who want an energy efficient home but lack upfront cash to do so. The Energy Efficient Mortgage (EEM) allows the buyer to add on the energy efficient upgrades onto your loan. This loan is backed by the FHA/VA loan programs and follows the same VA/FHA loan guidelines.

For more information on EEM Loans visit Energy Efficient Mortgages

4. USDA Loan: Rural Housing
This loan program is ideal for first-time homebuyers who have low to moderate incomes. First-time homebuyers may finance 100% of the loan. Buyers need a Credit Score of 640 to qualify. U.S. Department of Agriculture (USDA) loans are offered by mortgage lenders and are guaranteed by the USDA. 

The Catch: Properties need to be in the USDA eligible areas. 

The Con: The USDA has income limits depending on where you live. 
                Properties are usually outside of the city limits.

For more information about USDA Loans can be found here.

5. Good Neighbor Next Door Loan: Public Service
The Department of Housing and Urban Development (HUD) provides housing assistance to those serving in these professions: Teachers, Firefighters, Law Enforcement, and Emergency Medical Technicians. This loan helps these qualified first-time homebuyers receive up to 50% off the listed price of a home. 

The Catch: Owners must live in the home for a minimum of 36 months.

The Con: Must be an approved Realtor, Lender, and home found on HUD’s Website.

6. Fannie Mae and Freddie Mac Loans: Buyers with Higher Credit Scores 
Fannie Mae and Freddie Mac Loans are fixed rate conventional loans backed by Freddie Mac and Fannie Mae. Ideal for first-time homebuyers with higher credit scores. Offers low down payment financing, as low as 3%, and without income limits. 

The Catch: Must be the buyer's primary residence.

The Con: Mortgage Insurance on loans until 20% equity is met.

7. HomePath Ready Buyer Program by Fannie Mae: Good Credit

This program is ideal for first-time homebuyers who need help with closing costs. The Homepath Program helps first time home buyers with 3% of their closing costs.

The Catch: Must be an approved Homepath Property.

The Con: Must be a foreclosed home.
                Buyers must complete the homebuying education course.

Buying a home is the most important decision and the most money you will ever spend in your lifetime. Being a first-time homebuyer is overwhelming but being educated on the types of loans available may save you thousands of dollars. 

It is helpful to meet with a few different mortgage brokers to determine what loans you may qualify for and to get pre-approved before you start looking at homes. And, get pre-approved, not pre-qualified. If you have questions about the process, ask your agent or real estate professional.

*For more information, help, and programs available for Oregonian's, click Here. 

*For more information about Mortgage Loans visit Home Loan Information.

*Disclaimer: All mortgage lenders have their own guidelines they must adhere to.