Published On: Tue, Jan 3rd, 2023

Find the Best First-Time Buyer Home Loans

Buying a home for the first time is an exciting experience, and if you get the details right, it can be  quite rewarding. Since it involves a significant financial commitment, the savvy buyer will be keen to  explore financing options to get the best deal. Here are some tips for first-time buyer home loans you should keep in mind to help you navigate through the process. 

photo Alina Ku-Ku via Shutterstock

  1. Check Whether You Qualify for First-Time Home Buyer Assistance Programs 

First-time home buyer assistance programs are an excellent option to consider. Housing authorities  in many states provide financial assistance through participating lenders and will cover closing costs  and the down payment. 

Federal programs, such as the assistance provided by the Federal Housing Administration, are another option that first-time homeowners can explore. Such loans require a minimal down  payment. These programs insure the mortgages to protect the lenders against default. This  insurance increases the probability of potential homeowners getting the loan they need. However,  borrowers must pay private mortgage assistance, or PMI, as part of their monthly installments. 

National and state programs can be beneficial if you want to maximize the chances of owning a  home in a specific area or fall within a specified category of borrowers. 

  1. Opt for a Pre-Approval 

As a first-time home loan borrower, getting pre-approval can help you determine your budget. Pre approval involves a preliminary evaluation of your eligibility to borrow a loan based on key metrics,  such as income, existing debt obligations, credit score, and financial profile. It is a commitment from  the lender that you qualify to borrow a loan up to a specified amount. Once you are pre-approved,  you can apply for the loan when your offer on a home has been accepted.

Moreover, as you don’t need to furnish a contract with the seller to get pre-approved, you can  initiate the process as soon as you decide to buy a house. A pre-approval letter also makes you look  like a serious buyer and gives you an edge over other buyers. 

  1. Keep Your Debt Profile to a Minimum 

When evaluating loan applications, lenders always check the borrower’s outstanding debts and their  current income. The debt-to-income ratio is critical for predicting whether you are overleveraged or  have sufficient means to repay the loan. Paying off your debt on time also helps boost your credit score, another factor lenders take into account when reviewing loan requests. Your credit score can  affect your mortgage rate or even your chances of getting loan approval. 

Note that you shouldn’t take on additional loans or open new lines of credit just before applying for  your home loan. 

  1. Consider a Zero-Down Loan and Compare What Each Lender Offers 

As a first-time home buyer, the thought of having enough liquidity to pay for a down payment can be overwhelming. In such cases, you can opt for a zero-down mortgage. You don’t have to pay any money up front except closing costs and lender fees. Instead, you borrow a loan for the entire purchase price. USDA home loans and VA loans are government-back, zero-down home loan options provided through participating lenders. Each loan option has a strict eligibility requirement you must fulfill.

You can also approach private lenders, such as Yakima-based Solarity Credit Union, which offers various zero-down-payment and low-down-payment options. Solarity also charges flat origination fees, which helps you save on closing costs. Lastly, Solarity doesn’t sell the loan, which means servicing remains with them for the life of your loan.

5. Think About the Mortgage Term You Are Looking For

When it comes to mortgage terms, you can choose between a 30-year or a 15-year term, and sometimes a few other term lengths. Most first-time buyers opt for a 30-year fixed-rate mortgage, as the interest rate stays the same through the entire term, and the entire loan can be paid off in 30 years. The interest rate of a 15-year mortgage is lower but requires larger monthly payments.

Going for an adjustable-rate mortgage, or ARM, is another option in case the interest rates are very high when you apply for a home loan. ARM interest rates change over the life of the loan. The initial rate, which is locked in for the first few years of the mortgage, is significantly lower when compared to fixed-rate mortgage rates. As a first-time buyer, this mortgage option can help you keep monthly costs down. However, once the introductory period is over, the interest rate adjusts based on prevailing rates and can be significantly higher. If you plan to stay in your new home for the life of the loan, an ARM may not be the best option. You can also opt to refinance at the end of the initial period.

  1. Stay Within Your Budget 

If you have a good credit score and fulfill other parameters lenders consider for approving home  loans, you may find you’re eligible for a loan offer that’s more than what you need. However, more  is not always better when it comes to home financing. It will help you balance your finances if you 

stick to your original budget to pay off the debt without additional stress. Bear in mind that you may  need to cover additional costs for carrying out repairs or renovations of your new home. 

  1. Do Not Rush 

Buying a house is one of the largest financial commitments most people make in their lives. Make  sure to take your time to find a first-time buyer home loan that works best for your needs. Research  all the options thoroughly before you sign on the dotted line. 

Once you have a shortlist of lenders, check their eligibility criteria and get your essential paperwork in place to avoid any last-minute surprises. Always obtain loan estimates for the same type of  mortgage from multiple lenders and compare the interest rates, closing costs, and origination fees.  You don’t need to sign up with the first lender who approves your application. 

Getting approved for a home loan when you are a first-time buyer is possible. Make sure to consider  your specific needs and follow the tips above to increase your chances of securing a great home  loan.

Author: Carol Trehearn

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