Getting a Mortgage as a First-Time Home Buyer

First time home buyer down payment requirements are much more lenient, if you qualify for a mortgage that is insured by the Federal Housing Administration (FHA). Also known as an FHA loan, this type of mortgage is available to borrowers who meet basic credit and down payment requirements. If you are a first time home buyer with bad credit, however, you may still be able to qualify for an FHA loan, if you have at least 10 percent of the home’s purchase price saved up for a down payment.   

While an FHA loan can help you to achieve the American dream of purchasing your first home with less money saved for a down payment, this type of loan requires you to pay for mortgage insurance. This occurs whenever you make a down payment of less than 20 percent of the home’s purchase price. Making a larger down payment on house purchases can help you avoid paying for this additional fee. 

To learn more about using an FHA loan to purchase your first home, and to explore several other mortgage options that may be available to you, review the information below. 

How to Qualify: First Time Home Buyer

If you are seeking how to qualify first time home buyer tips, keep in mind that you may be able to use an FHA loan to purchase a home – if you have a credit score of at least 580, and can make a down payment of at least 3.5 percent of the home’s purchase price. If the purchase price of the home is $150,000, for instance, you would need at least $5,250 saved for the down payment, in order to qualify for an FHA loan. 

Another popular first time home buyer mortgage is a Fannie Mae or Freddie Mac loan, as these mortgages require a down payment of just three percent of the home’s purchase price. However, you must have a FICO credit score of at least 620 in order to qualify for these affordable homebuying programs.  

Moreover, other financing options may be available to you if you meet additional eligibility requirements. Depending on your situation, you may qualify for a/an:

  • VA loan under the U.S. Department of Veterans Affairs (VA). You can waive first time home buyer down payment and credit requirements if your spouse or you have served in the military. VA loans are available to veterans, active duty military members and their families. 
  • USDA loan under the U.S. Department of Agriculture (USDA). If you have a FICO credit score of at least 640 and reside in a low-to-moderate-income household, you may qualify for a USDA loan, if you meet income restrictions for the area in which you live.  
  • Discount on the purchase of your home through the Good Neighbor Next Door Program. When buying a new home, you can get a 50 percent discount on the home’s listed price if you are a teacher, a law enforcement officer, an emergency medical technician or a firefighter. 

How to Shop for a Mortgage

To get a first time home buyer mortgage, it is important to shop around for the best interest rates and the most reputable mortgage lenders. Common types of lenders include mortgage bankers, credit unions and correspondent lenders. 

To find the best lender for your needs, keep the following tips in mind as you shop around for a mortgage:

  • Check your credit report for errors and attempt to improve your credit score at least several months in advance (if necessary)
  • Verify whether the lender is registered with the Nationwide Multistate Licensing System (NMLS)
  • Search for the company under the Better Business Bureau (BBB)
  • Apply for a mortgage preapproval letter by providing the lender with up-to-date financial information
  • Compare mortgage rates from multiple lenders

How can I get a mortgage with bad credit?

If you are a first-time home buyer with bad credit, you may still be able to qualify for an FHA loan, if you can make a larger down payment of at least 10 percent of the home’s purchase price. If you have a credit score of between 500 and 579, for instance, you may be able to qualify for an FHA loan if you have at least $15,000 saved to make a down payment on a $150,000 home. 

While specific first-time home buyer mortgage requirements may vary by situation, some of the best lenders for bad-credit borrowers include Vylla, Rocket Mortgage, J.G. Wentworth and Quicken Loans. 

Down Payment Strategies

While saving enough money for a down payment on a house is troublesome for many Americans, there are several actions you can take if you are struggling to come up with the funds you need to qualify for a mortgage. The first time home buyer tips below can help you to obtain the money you need for the down payment on your first home: 

  • Check with your state and local government to find out if any down payment assistance programs are available to you
  • Look for nonprofit organizations in your area that offer grants for down payments and closing expenses
  • When saving for your first time home buyer mortgage, ask family members for cash donations that can be used as part of your down payment
  • Withdraw up to $10,000 from your individual retirement account (IRA) if you opened the account at least five years prior
  • Create a Feather the Nest or GoFundMe page and request donations from friends and family members
  • Before buying a new home, schedule automatic transfers from your checking to savings account to set money aside for your down payment
  • Find out if you can refinance your student loans

While many first time home buyer down payment assistance programs are available, some of your options will vary, depending on the state where you live. In California, for instance, you may qualify for assistance through the California Housing Finance Agency (CalHFA), while the State of New York Mortgage Agency (SONYMA) assists those who live in the Empire State.  

Depending on where you live, other first-time home buyer down payment assistance programs include:

  • The Florida Housing Finance Corporation (FHFC).
  • The Texas Department of Housing and Community Affairs (TDHCA).
  • The Pennsylvania Housing Finance Agency (PHFA).
  • The Illinois Housing Development Authority (IHDA).

Contact an approved lender in your area to learn more about these assistance programs, and how to qualify.