How to Qualify for a Home Loan for a First-Time Buyer

How to Qualify for a Home Loan First Time Buyer

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The prospect of owning a home can be exciting, but getting too excited and failing to do the proper research can result in numerous issues throughout the process. As a first-time buyer, you want to make sure you’re getting the best possible mortgage loan with desirable terms. 

The good news? As a first-time home buyer, you have a lot of opportunities. Here’s how to qualify for a home loan as a first-time buyer and how to find a program that best supports you in your home-buying journey. 

Who Is Considered a First-Time Buyer?

The term, “first-time buyer” is pretty straightforward. Those who are likely seeking out first first-time buyer home loans are those who are going to be owning a home for the very first time. First-time buyer loans are designed for these individuals. 

However, the term, “first-time buyer” doesn’t just apply to those who’ve never owned a home before. In fact, those who haven’t owned a home in the past three years (among other eligibility requirements), also qualify for first-time home buyer programs. 

This means that, if you’ve had to give up the homeowner’s life for whatever reason in the last three years or beyond, you can tap into the same benefits you received when you purchased your first home. 

Some of these other eligibility requirements include not being a property investor (you own homes you don’t live in), looking for houses that meet certain safety standards, and, in some cases, meeting specific income criteria. 

With all this in mind, you might be wondering, why should I be so focused on looking for first-time buyer loans and other programs in my area? 

Benefits of Being a First-Time Home Buyer

First-time home buyers are much more privileged than those who already own a home or have owned one within the past three years. Some of the key advantages of being a first-time home buyer include: 

  • Tax Benefits: Property taxes can be a source of anxiety for some. Fortunately, the IRS offers plenty of tax benefits for first-time home buyers. These include first-time home buyer credits as well as being able to withdraw from your IRA or 401(k) to pay for your home without dealing with penalties. 
  • Discounted Mortgage Rates: You want your mortgage rate to be as low as possible so that you can afford your monthly payments with ease. First-time home buyers benefit from discounted mortgage rates that make their new home more affordable. 
  • Cash Grants: Your local government might offer cash grants to help you purchase your home if you fall a little short of what you’re looking to buy. Cash grants will generally go up to $25,000. 
  • Low Down Payments: Putting more money down can make it easier to cut down your monthly payments, but it might not be viable for everyone. Fortunately, first-time home buyers can take advantage of home loans with low down payments while also getting the funding they need. That being said, a large downpayment on a house should always be considered if possible. 

No matter your financial situation or your homeownership goals, there’s plenty of support out there that you can take advantage of to make your dream of owning your own home a reality. 

Loan Options for First-Time Home Buyers:

Ready to find the right loan for your needs? Here are some of the loan options for first-time home buyers that you should look further into. 

Conventional 97 Loan

Aptly named, the Conventional 97 loan refers to how much your lender covers. Typically backed by Fannie Mae or Freddie Mac, first-time home buyers who manage to secure this loan only need to put 3% down on their home. 

As with most mortgage loans, there are eligibility requirements you will have to meet. You’re going to need a 620 credit score in order to qualify. You’ll also have to pay for private mortgage insurance alongside mortgage payments if your down payment is below 20%.

If or once you reach 20% of the mortgage value then the private mortgage insurance requirement will fall off the loan.

VA Home Loan

Backed by the Department of Veteran Affairs, a VA home loan is designed to support active duty military members, veterans, and even surviving spouses of military personnel. 

VA home loans make it very easy for any of these individuals to buy a home. With a VA home loan, you can expect benefits like: 

  • No money-down requirements (although there may be some additional fees associated with buying your home with this option).
  • Lower interest rates to help you afford your home over the term of the loan.
  • There is no minimum credit score that the VA requires. Though, some lenders require a minimum 580 credit score, which can help those with lower credit scores get a home loan. 

Keep in mind that you will need to provide the necessary documentation to show that you’re eligible for this type of loan. 

USDA Home Loan

A USDA loan, backed by the U.S. Department of Agriculture, is designed to help those who live in suburban and rural areas find a home. These types of loans are widely available for those who live in less densely populated areas outside of urban city centers. 

USDA home loans are another 100% financing option, and those who qualify for one can benefit from lower mortgage rates, relaxed approval requirements, and even discounted mortgage insurance if you’re putting no money down or a low down payment. 

Most lenders will require a minimum of a 640 credit score, but there are no minimum credit score requirements. You will have to check whether or not your desired home is in a USDA-eligible area before you apply.

FHA Loan

FHA mortgages, backed by the Federal Housing Administration, are the blueprint for low down payment mortgages. The first to be created back in 1934, FHA loans are defined by minimum down payments of 3.5%. 

In order to qualify, you’re going to need to have a credit score of at least 580. However, you may be able to get an FHA loan with a credit score of as low as 500 if you’re able to put at least 10% down on your home. 

If you’re putting down 20% or more, you will still be required to pay private mortgage insurance.  

Fannie Mae HomeReady Loan

Not everyone may have the income to seamlessly purchase their first home. That’s where the Fannie Mae HomeReady mortgage loan comes in. 

HomeReady is a subsidized mortgage loan for first-time home buyers with low to moderate income. This loan is characterized by relaxed approval standards, lower mortgage rates, and reduced private mortgage insurance. 

Once 20% of the home is reached on your loan then the discounted, monthly private mortgage insurance payment will fall off of your loan.

You need a minimum credit score of 620 and be able to put a minimum of 3% down on your new home. 

Freddie Mac Home Possible Loan

Having multiple choices when shopping around for a home loan as a first-time buyer is important. 

The Freddie Mac Home Possible Loan is pretty much the same as the Fannie Mae HomeReady Loan in every way, with the exception of credit scores. While eligibility requirements are still relaxed, those who have a credit score of 660 or above tend to fare better. 

The credit score needed to buy a home will always vary by loan type. 

Make sure to review both of these programs when you’re looking for a loan program that offers these types of benefits. 

How Do I Find First-Time Home Buyer Programs?

There are so many resources out there that it would be difficult to avoid learning how to qualify for a home loan as a first-time buyer. To get started, simply:

  • Use municipality websites and resources to find grants and other opportunities in your area. 
  • Take a broader look at your state to see what your government may have to offer first-time home buyers like you. 
  • Research some of the loan options listed in the guide above to see if you qualify and what you need to do to move forward. 

With a world of knowledge at your fingertips, locating first-time home buyer programs is simple. 

Being a first-time home buyer can be daunting. Fortunately, there are so many programs, mortgage loans, and opportunities to help you become a homeowner with greater ease. 

If you’re interested in how to qualify for a home loan as a first-time buyer, leverage the advice above to learn more about some of the loans and other resources tailored to your specific needs. 


Is It Easier to Qualify as a First-Time Buyer?

Generally speaking, yes. It is much easier to qualify as a first-time buyer. 

Why is this? Unlike those who already own a property or have recently owned a property, there are a myriad of home loans with extremely relaxed eligibility standards. This helps those who otherwise wouldn’t qualify for other conventional loans to make homeownership a reality. 

First-time buyer programs and loans are often accompanied by lower credit score requirements, lower mortgage rates, discounted (or nonexistent) private mortgage insurance, and other benefits. 

If you’re considered a first-time home buyer, don’t fret. You’re sure to get plenty of support to help you afford a house in your area (although boosting your credit and income and saving up for a down payment never hurts). 

What Is the Minimum Salary to Get a Home Loan?

If you’re shopping around for a home, you know that financial aspects like your credit score play a major role in approval. But what about income? What is the minimum salary you need to have in order to qualify for the home loan of your choosing?

The reality is that it’s not quite that straightforward. One salary might be able to comfortably afford a home in one state but not in another. Rather, there are several factors that lenders weigh when considering you for a mortgage. These include: 

Consistent Monthly Income: Those who have a salaried position are easily able to submit pay stubs and W-2s to prove income. Those who are self-employed, however, have much more documentation to provide and may have inconsistent income. If you have an inconsistent income, being able to prove you can afford your home and are financially stable is extremely important. 

Debt-to-Income Ratio: While there are no minimum income requirements, your lender does want to make sure you can afford your monthly payments. This is why they consider your debt-to-income ratio. If your debt already eats up most of your income, adding a mortgage wouldn’t make financial sense. Make sure you have room in your budget for your expected mortgage payments. 

Credit Report: Your credit report can reveal how on top of your finances you are. Do you tend to make late payments? Are you behind on certain debts? Consider all of this as well as your score before applying as it will influence how lenders approach your application. Also, ask questions like, how much credit history do you need to buy a home? (2 years is best, but you can get away with 1 with some lenders.)

Down Payment: The bigger your down payment, the lower your monthly payments. Pay enough, and you can also avoid private mortgage insurance depending on the loan type you choose. Lower down payments require more financial responsibility on your end, and lenders have to make sure you’re ready for it. 

Which Loan Option is Best for First-Time Home Buyers?

There is no single loan option that all first-time home buyers should go for. Instead, your individual circumstances will determine which loan you go with. 

Weigh the above mortgage choices, see which you qualify for, then consider which one will offer you the best possible terms. 

How Can I Improve My Credit Score to Get a Home Loan?

It’s never too late to work on your credit score to get a home loan. 

Start by working on paying off any existing debts so that you are caught up and in good standing, keep your credit utilization below 30%, and make on-time payments.

There are plenty of helpful tips you can leverage to improve your credit here at Digital Honey!

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