What qualifies as a “good mortgage rate” is in the eye of the beholder. But certain types of home loans offer better interest rates than others. And there are steps you can take to nab a lower mortgage rate in today’s market.

Check your mortgage rates. Start here (Sep 16th, 2024)

Which mortgage types have the lowest interest rates?

Typically, 15-year fixed-rate mortgages offer lower interest rates than 30-year mortgages. Adjustable-rate mortgages are also typically a better deal than 30-year rates, at least in the short term.

Federal Housing Administration (FHA) and Veteran Affairs (VA) loans offer more attractive rates. The average rate of a 30-year fixed-rate FHA loan was 6.41% on December 28, 2023, according to the Federal Reserve Bank of St. Louis. The average 30-year fixed-rate VA loan measured 6.12% that day.

USDA loans — government-sponsored mortgages provided by the U.S. Department of Agriculture — are for borrowers purchasing homes in rural areas. They offer interest rates as low as 4.25% for low- and very low-income borrowers, according to USDA.gov.

Current mortgage rates

The interest rates reported below are from a weekly survey of 100+ lenders by Freddie Mac PMMS. These average rates are intended to give you a snapshot of overall market trends and may not reflect specific rates available for you.

Copyright 2024 Freddie Mac. Averages are based on conforming mortgages with 20% down.

What determines your mortgage rate?

Several factors affect what mortgage rate you can qualify for:

• Market conditions. Mortgage rates track with shifts in 10-year Treasury note yields — and those yields are partly influenced by changes in the Federal Reserve’s benchmark interest rate. A higher benchmark rate means higher borrowing costs for mortgages.
• Your finances. Mortgage lenders take several key factors into account when assessing a borrower’s application. Your credit score, loan amount, down payment, and debt-to-income ratio can all impact the rate that you qualify for.
• Mortgage lender. Rates can vary by lender, which is why it’s a good idea to shop around. Proof: Nearly half of borrowers who compared offers said the first mortgage offer they received was not the lowest rate, a recent LendingTree survey found.
• Loan type. As outlined above, the type of loan you get affects your mortgage rate.
• Loan term. Shorter-term loans typically offer lower mortgage rates. (At the same time, they also have higher monthly mortgage payments.)

Check your mortgage rates. Start here (Sep 16th, 2024)

When should you consider an ARM mortgage?

An adjustable-rate mortgage is a loan that offers a low-interest rate for a set number of years, typically anywhere from 3, 5, 7, or 10 years. When that period ends, the interest rate adjusts, usually once per year, based on market conditions — though in most cases, “adjusts” means the rate increases.

Whether an ARM makes sense for you often depends on your financial circumstances and your plans for the home.

An ARM might be a good option if:

• You plan to sell the home early
• You will be receiving a windfall
• You plan to retire soon

Read more: When does an ARM make sense?

9 tips to get a lower interest rate on your mortgage

1. Check your eligibility for a VA, FHA, or USDA loan

Because VA, FHA, and USDA loans are government-backed, and therefore somewhat less risky for lenders, they often offer lower interest rates than conventional loans.

VA loans are for active or retired military veterans who’ve served 90 days consecutively during wartime, 180 during peacetime, or six years in the reserves (or a veteran’s surviving spouse).

FHA loans are intended to help low- and moderate-income borrowers purchase homes. They are particularly popular with first-time home buyers.

USDA loans are for people purchasing a home in an eligible rural area, which the Department of Agriculture typically defines as a population of less than 20,000. To qualify, you can’t make more than 115% of the area median income.

2. Consider an ARM

An adjustable-rate mortgage has a lower interest rate than a fixed-rate loan — and, as a result, a lower mortgage payment — for a predetermined initial period. To be eligible for a conventional ARM, you typically must have at least a 5% down payment, a credit score of 620 or higher, a debt-to-income ratio of no more than 50%, and a loan-to-value ratio of no more than 95%.

An ARM isn’t right for everyone, but it could be a good fit if you’re a first-time buyer purchasing a starter home that you know you’re going to sell before the introductory rate ends, flipping a house, or feel comfortable with potentially absorbing higher rates and higher mortgage payments in the future.

3. Shop around

Mortgage rate offers can vary from one lender to the next. So, obtain multiple quotes before choosing a lender. According to a Freddie Mac study, borrowers save an average of $3,000 over the life of their loan by getting five quotes instead of just one.

4. Improve your credit score

Typically, the higher your credit score, the lower your mortgage interest rate. Generally, an excellent credit score is anything from 750 to 850; a good credit score is from 700 to 749; a fair credit score is from 650 to 699; and any credit score lower than 650 is deemed poor.

If your credit history has some black marks, taking steps to raise your credit score can help you qualify for a better rate. Reviewing your credit reports for errors and paying down credit card debts are good places to start.

5. Choose your loan term carefully

A 15-year fixed-rate mortgage offers a lower mortgage rate than a 30-year fixed-rate mortgage, but take a close look at your finances to make sure you’d be comfortable taking on the higher monthly mortgage payments that come with a shorter-term loan.

6. Make a larger down payment

Jumbo loans — mortgages that exceed the loan limit of conforming loans set by Freddie Mac and Fannie Mae — typically have higher interest rates. Therefore, making a larger down payment could potentially lower your mortgage rate if it enables you to qualify for a conforming loan instead of a jumbo loan.

In 2023, the conforming loan limit in most areas of the country is $726,200, with some high-cost areas allowing for conforming loans as high as $1,089,300.

7. Buy mortgage points

Mortgage points, also known as discount points, are extra funds paid upfront at closing. Purchasing them can lower your loan’s interest rate and, as a result, reduce your housing payments. Generally, one point costs 1% of your loan amount (so, one point on a $300,000 mortgage would cost $3,000), and each point trims your interest rate by a small amount, typically 0.25 percent per point.

Under the right circumstances, discount points can help you save money over the life of the loan.

8. Get a rate lock

If you’ve been pre-approved for a loan and qualified for a good interest rate, getting a mortgage rate lock would allow you to lock in that low rate for a set period of time — typically 30, 45, or 60 days, protecting you from rate hikes in the near term.

Most lenders offer borrowers free 60-day rate locks upon request; longer rate locks typically cost money, usually a few hundred dollars.

9. Negotiate with lenders

Some lenders may be willing to offer a lower mortgage rate, especially if you’ve received competitive offers from a few different lenders. This is part of the reason that it’s important to shop around for the best rate.

Pro tip: If you can’t get a lender to budge on the interest rate, see if they’re willing to reduce certain closing costs, such as title insurance, loan origination, or underwriting fees.

Low-rate mortgages FAQ

What type of mortgage has the lowest interest rate?

VA loans typically have the lowest interest rates, narrowly beating FHA loans. But only active or retired military veterans (or a surviving spouse) are eligible for VA mortgages.

How can I get a 3% mortgage rate?

Sorry to be the bearer of bad news, but 3% mortgage rates are no longer available (at least for now). That’s because mortgage rates more than doubled in 2022, with the average rate for a 30-year fixed-rate mortgage closing out the year at 6.42%.

How are ARMs calculated?

To set ARM interest rates, lenders determine the loan’s fully indexed rate — the highest possible interest rate that you’d pay when your ARM’s introductory rate period ends. This figure is calculated by adding the index (whatever that happens to be when your initial rate expires) and a margin (usually 1.75% for Fannie Mae or Freddie Mac loans).

How does an adjustable-rate mortgage work?

An ARM offers a lower interest rate for a set number of years, typically anywhere from 3, 5, 7, or 10 years. When that introductory period ends, the interest rate adjusts, usually once per year, based on market conditions.

Are adjustable-rate mortgages ever a good idea?

ARMs got a bad rap because of their contribution to the housing crash of 2008 and 2009, but they’re not necessarily a bad product — and lenders have tightened their requirements of ARM borrowers, making adjustable-rate loans safer than they were in the past. An ARM could be a good way to save money if you know that you’re going to sell your prospective home before the introductory rate expires.

How do you shop for mortgage rates?

You can shop for mortgage rates by reaching out to lenders on your own to obtain loan estimates, or you can use a mortgage broker, a professional who can shop for mortgage offers on your behalf.

Is it better to have a lower interest rate or APR?

Generally, it’s better to score a lower APR than a lower interest rate. Why? Because APR — short for annual percentage rate — is the annual cost of a loan to a borrower, including the interest rates and fees. That means APR gives you a fuller snapshot of your mortgage costs. Comparing APR offers is relatively easy since the Federal Truth in Lending Act requires lenders to disclose a borrower’s APR in every consumer loan agreement.

The bottom line: Low-rate mortgages

Though mortgage rates have increased in recent months, borrowers can still save on their mortgage loans by making sure they’re getting the lowest possible interest rate.

Check your mortgage rates. Start here (Sep 16th, 2024)

The post Low Rate Mortgages | 2024 first appeared on My Mortgage Insider.

Not everyone will qualify for both loans, but eligible buyers may be able to purchase a new home with as little as 3.5% down — or even no down payment at all.

Below, we explore the requirements for each loan type.

Check your home buying eligibility. Start here (Sep 16th, 2024)

Is a USDA or FHA loan better?

Neither home loan option is inherently better than the other. The best loan option for you will depend on the specifics of your eligibility, home buying goals, and personal financial situation.

Generally speaking, FHA loans are a more flexible lending solution for buyers with lower credit scores or less cash available for a down payment. USDA loans have income limits and location restrictions to consider before applying and are designed to help rural or suburban borrowers become homeowners.

USDA vs FHA loans for first-time home buyers

As a first-time homebuyer, the right choice between the USDA and FHA loan will vary based on your situation.

For many first-time home buyers, especially low-income families, saving up for the down payment is the biggest hurdle. After all, it can be a challenge to put aside a substantial amount of cash without life getting in the way.

If you qualify for a USDA loan, you won’t have to put any money down at all. The USDA loan is a zero-down loan. This can be a great opportunity but you’ll need to meet specific income and location standards to take advantage of it. Buyers must be in a USDA-designated “rural area” to be eligible for this program. You can check a property’s eligibility using this tool.

Since not everyone can qualify for the USDA loan and its zero down payment opportunity, the good news is that the FHA loan offers a low down payment option. It’s possible to put down as little as 3.5% with this home loan.

In either case, you’ll find a relatively affordable pathway to homeownership.

USDA vs FHA eligibility

FHA loan requirements

The FHA loan program is backed by the U.S. Department of Housing and Urban Development (HUD) through the Federal Housing Administration (FHA). This mortgage program is intended to help people with fair credit and modest savings become homeowners more easily.

In order to qualify for an FHA loan for your home purchase, you’ll need to meet the following requirements:

• Down payment: You’ll need to put down at least 3.5% if you have a credit score of at least 580. But the minimum down payment requirement increases to 10% if you have a credit score between 500 and 579.
• Sufficient income: The FHA requires you to prove sufficient income to support your monthly payments.
• Low debt-to-income ratio (DTI): Lenders look at your DTI to determine how much of your income is already dedicated to debt payments. FHA lenders often require a DTI of 45% or lower but may go as high as 50% in certain cases
• Loan limits: As of 2024, most areas have a maximum loan amount of $498,257. But some high-cost areas have higher loan limits for FHA borrowers. Remember, this is the loan limit, not the purchase price limit.
• Property types: You can purchase a property with up to four units as a primary residence with an FHA loan.

Check your FHA eligibility. Start here (Sep 16th, 2024)

USDA loan requirements

The USDA loan is backed by the U.S. Department of Agriculture with the goal of helping rural families obtain affordable homeownership.

Households that meet the following requirements could qualify for a USDA loan:

• Location restrictions: Not all properties qualify for USDA loans. Instead, only rural areas qualify. Here’s where you can find out if a property you have in mind qualifies for USDA loans. Additionally, the property must be a single-family home.
• Income limits: Your household’s income cannot exceed 115% of the area’s median income. Use this tool to find out the income limits for your county. And of course, you’ll need enough income to cover your monthly mortgage payment.
• Low debt-to-income ratio (DTI): Most USDA lenders require a DTI of 41% or lower.
• Credit score: Although the USDA doesn’t set a specific credit score limit, most mortgage lenders require a 640 credit score. Additionally, you won’t want an adverse credit history that includes foreclosures or late credit card payments on your application for this homeownership program.
• Primary residency: USDA loans are a great mortgage option for those looking for a primary residence. If you are looking for a second home, you won’t qualify for a USDA mortgage. Additionally, only single-family homes are allowed.

Check your eligibility for a USDA home loan. Start here (Sep 16th, 2024)

USDA vs FHA vs conventional

Both USDA and FHA loans are government-backed options. That government backing provides extra assurance to private lenders, which in turn means it’s easier for borrowers to qualify who might not be eligible for a conventional loan. That includes buyers with lower incomes or less established credit histories.

With both the USDA and FHA programs, you’ll find low-down payment options and relatively flexible credit score requirements. However, both low-income mortgage loan types will require upfront and monthly mortgage insurance payments regardless of your down payment amount.

However, there are conventional loan programs that will also allow you to make a low down payment, sometimes as little as 3%. The credit requirements will be stricter but with the added benefit that mortgage insurance can be canceled when you accrue 20% equity.

Other homeownership programs with low down payment requirements to consider include:

• VA loans, backed by the U.S. Department of Veterans Affairs for veterans and active-duty service members
• HomeReady by Fannie Mae, which require a down payment of as little as 3%
• HomePossible by Freddie Mac, which also requires a down payment of just 3%

Additionally, many states and nonprofits offer housing programs and down payment assistance programs to help you achieve your real estate ownership goals.

FHA pros and cons

Every mortgage product has advantages and disadvantages. Here’s what to know about FHA loans.

Check your eligibility for an FHA loan. Start here (Sep 16th, 2024)

USDA pros and cons

Of course, the USDA loan also has some benefits and flaws to consider. Here’s what to know about USDA loans.

Check your eligibility for a USDA loan. Start here (Sep 16th, 2024)

USDA vs FHA FAQ

Is it easier to get an FHA or USDA loan?

Both mortgage programs can offer a more accessible homebuying process than conventional loans. In general, the FHA loan is considered a more flexible loan opportunity thanks to its lenient credit score requirements. However, if you live in the right location and don’t have a down payment, a USDA loan can put homeownership within reach.

Is a USDA loan cheaper than an FHA loan?

The lack of a down payment requirement makes a USDA loan a more affordable option upfront. Additionally, because they carry lower mortgage insurance rates, USDA loans are often an overall more affordable option than FHA loans for buyers who qualify.

What is the downside to a USDA loan?

The biggest downside to USDA loans is the location restrictions. If you aren’t planning to live in a rural location, then a USDA loan is off the table for your homeownership needs. Additionally, the program is specifically designed for low-income home loans. To qualify, your household income must not exceed limits for your geographical area. You can check limits for your county here.

Why would a seller not want a USDA loan?

A seller might not want a USDA loan because the property must meet certain livability thresholds. The property must have adequate utilities and provide a safe environment for its occupants. Additionally, the property must connect to a public road.

What credit score do you need for a USDA loan?

The USDA doesn’t set specific credit score requirements for USDA loans. However, most lenders require a credit score of at least 640 to issue a USDA loan to future homeowners.

Do USDA loans require home buyer education courses?

Yes, the USDA requires that first-time home buyers complete a home buyer education course.

Bottom line: USDA vs FHA loans

USDA loans and FHA loans are both designed to help those with lower income pursue their homeownership goals. If you qualify for one or the other, homeownership might be within reach.

Check your home buying eligibility. Start here (Sep 16th, 2024)

The post USDA vs FHA: Which low down payment loan is best for first-time home buyers? first appeared on My Mortgage Insider.

The proposed tax credit offers some financial relief to households looking to buy in this challenging housing market. While this proposed tax credit could help you become a homeowner, it’s not the only way to make this dream a reality.

Let’s explore what the Biden First-Time Home Buyer Act is and your other options.

Check your home buying eligibility. Start here (Sep 16th, 2024)

What is the Biden First-Time Home Buyer Act?

The Biden First-Time Home Buyer Act, also known as the First-Time Home Buyer Tax Credit, was originally proposed by the Biden administration in 2021. If the idea became a reality, it would allow first-time home buyers to enjoy a tax credit of up to 10% of their home’s purchase price, with a maximum amount of $15,000.

Importantly, the financial assistance would come in the form of a refundable tax credit. Tax credits are applied to your tax return, which means you won’t see the funds until you get your tax refund.

Did the Biden First-Time Home Buyer Act pass?

As of January 2024, the Biden First-Time Home Buyer Act has not passed. It’s possible that the act will be passed in the future. But it’s also possible the act will be defeated.

How to qualify for the Biden First-Time Home Buyer Credit

Since the Act hasn’t become law yet, the eligibility requirements included in it could change. But as of writing, home buyers must meet the following requirements to obtain the tax credit:

• You must be at least 18 years old.
• You must be purchasing the property to use as a primary residence.
• The house purchase price must be less than 110% of the area’s median home purchase price.
• Your household income must be less than 160% of the area’s median income.

Again, the eligibility details could change if the bill becomes law in the future.

Check your home buying eligibility. Start here (Sep 16th, 2024)

What is the Down Payment Toward Equity Act?

The Down Payment Toward Equity Act is another piece of proposed legislation that could help prospective home buyers achieve the goal of homeownership. As the name of the Act suggests, some first-time home buyers would qualify for a $25,000 cash grant to assist with their home purchase.

The grant wouldn’t be available to everyone. Specifically, the proposed bill includes income limits and home price limits. But as of January 2024, the Down Payment Toward Equity Act hasn’t passed yet. With that, only time will tell if this grant will become law.

Existing help for first-time home-buyers

As of this writing, neither the First-Time Home Buyer Tax Credit nor the Down Payment Toward Equity Act have become law. But that doesn’t mean that prospective homeowners can’t find financial help on their journey to homeownership.

Below is a closer look at some of the available first-time home buyer programs and home buyer assistance.

First-time home buyer programs

Prospective home buyers may find the help they are looking for through government-backed home loans. A few of the different mortgage loan types to consider include:

• FHA loans: FHA loans are backed by the Federal Housing Administration. With a minimum credit score of 580, you can make a low down payment of just 3.5 percent of the loan amount. The catch is that you’ll be required to pay mortgage insurance.
• VA loans: The Department of Veterans Affairs backs VA loans, which are available to active-duty military members, veterans, and select National Guard and Reserves members. This loan has flexible eligibility requirements, competitive mortgage rates, no private mortgage insurance, and no minimum down payment.
• USDA loans: USDA loans are backed by the U.S. Department of Agriculture. If you live in a qualifying rural area, you may not have to put anything down with this mortgage program.

But government-backed loans aren’t the only type of mortgage available to first-time buyers. Many first-time home buyers can make homeownership happen with one of the following loans:

• Conventional loans: With a credit score of at least 620, you might be able to make a down payment as small as 3%.
• Home Possible loans: Home Possible loans are available through Freddie Mac. The loan program offers a down payment requirement of 3%. It’s designed for low-income and moderate-income borrowers.
• HomeReady loans: Fannie Mae offers HomeReady loans, which are also designed for borrowers with low to moderate incomes.

Down payment assistance programs

The right loan can make a big difference to your homeownership prospects. But coming up with the funds for a down payment is still an obstacle for many would-be buyers.

The good news is that many local governments and nonprofits offer down payment assistance programs or closing cost assistance that are available to help you get into a home.

A few types of down payment assistance programs include:

• Grants: Many states offer first-time home buyer grant programs to help qualified buyers cover the down payment.
• Forgivable loans: Some states offer forgivable down payment loans, which involve forgiving your down payment loan after you live in the home for a predetermined period of time.

As you explore your options, a local housing agency or lender might be able to help you uncover all of the financial assistance possibilities.

Check your home buying eligibility. Start here (Sep 16th, 2024)

How to move forward with homeownership

Homeownership is a major financial commitment. As you gear up for this significant change, it’s important to lay the groundwork for financial stability after closing.

Below are some ways to prepare your finances for homeownership:

• Assess your existing debts: Mortgage lenders look at your debt-to-income ratio. In general, lenders prefer to work with borrowers who have a lower debt-to-income ratio. Take stock of your debts. If your have significant debts, then consider paying off some of it before applying for a mortgage.
• Look at your credit score: Evaluate your credit score to determine where you stand. While credit score requirements vary based on your loan type, a better credit score generally translates into a lower interest rate.
• Decide what you can afford: Look at your financial situation to determine how much you can comfortably afford to spend on a monthly mortgage payment. It’s important to be realistic about what you can afford before you start shopping for a home.
• Weigh your loan options: You have many different loan options to choose from. Do some research to determine which is the right fit for your situation.

When you are ready to move forward, it’s time to submit your application. And, of course, find a home that suits your needs.

First-Time Home Buyer Act FAQ

What is Biden’s $15,000 First-Time Home Buyer Act?

The Biden First-Time Home Buyer Act is a piece of proposed legislation designed to help prospective homeowners achieve homeownership. The financial assistance would come in the form of a refundable tax credit, for up to $15,000.

What is the new Biden mortgage law?

The Biden administration has proposed two different pieces of legislation related to providing financial assistance to first-time home buyers. But neither of these proposed acts have become law, as of January 2024.

Who qualifies as a first-time home buyer?

In general, an individual is considered a first-time home buyer if they haven’t owned a home in the last three years.

The bottom line: Assistance is available for first-time home-buyers

The proposals put forward by the Biden administration are aimed at helping first-time buyers achieve homeownership. But as of writing, neither of these bills has been passed. While these bills might pass in the future, it’s possible to move forward with your dream of homeownership without waiting for this proposed financial assistance.

If you are a first-time home buyer, it’s worthwhile to explore other options. For example, government-backed home loans and state-level grants could help you achieve your goal of owning a home. If you are ready to get started, get pre-approved today.

Check your home buying eligibility. Start here (Sep 16th, 2024)

The post Biden First-Time Homebuyer Act | Benefits & Requirements 2024 first appeared on My Mortgage Insider.

There are lots of assistance programs to help home buyers purchase homes, and grants — which you don’t have to repay — are often the most attractive.

Let’s explore your homeownership grant options as a first-time buyer.

Check your home buying eligibility. Start here (Sep 16th, 2024)

What is a first-time home buyer grant?

First-time home buyer grants offer financial assistance to put homeownership within reach for buyers. As an eligible home buyer, you can use the funds to help cover your down payment and closing costs.

The best part about first-time home buyer grants is that you never have to pay the money back.

You can find first-time home buyer grant options available through the federal government. But many state and local governments also offer home buyer grants.

9 types of first-time home buyer grants

A first-time home buyer grant might be just what you need to close on a home purchase. Here’s a closer look at the first-time home buyer grant programs you might qualify for.

1. State first-time home buyer grants

Most states offer a down payment assistance program to qualifying residents. Since this is on a state level, the rules for first-time home buyer grants will vary based on where you live.

Some states and local governments offer outright grants, which you don’t have to pay back. Typically, these range from a few thousand dollars to 5% of your home’s purchase price.

Other states offer forgivable loans, also known as silent mortgages, which are similar to grants. These second mortgages don’t come with a monthly payment and are forgiven after a set period of time. Generally, this type of forgivable loan comes with requirements you’ll have to meet to qualify for full forgiveness. For example, you might have to live in the home for a set number of years before the loan is forgiven.

Even if your state doesn’t offer grants, it may offer a repayable down payment loan. When you take out a first-time home buyer down payment loan, it will come with a monthly payment. The good news is that the interest rates on these down-payment loans are usually relatively low.

2. National Homebuyers Fund

The National Homebuyers Fund offers both grants and three-year forgivable loans to qualifying buyers. The fund is designed to support low-income and moderate-income home buyers in the home-buying process.
Although the exact amount varies based on your situation, you can receive up to 5% of your loan amount. To move forward, you’ll need to work with a mortgage lender that participates in the NHF program.

3. Chenoa Fund

The Chenoa Fund offers down payment assistance to first-time buyers, with a focus on borrowers with strong credit and low to moderate income.

Instead of an outright grant, the Chenoa Fund provides three-year, forgivable loans. It also offers down payment loans that must be repaid. Your financial situation will determine which opportunity you qualify for.

You can receive a forgivable loan of up to 3.5% of the purchase price. But you’ll need a minimum credit score of at least 600 to apply. Of course, the forgivable loan is preferable. However, borrowers that don’t qualify might find a solution in the Chenoa Fund’s repayable loan.

4. Community Seconds

Community Seconds is a program available through Fannie Mae. Although this program doesn’t offer grants outright, it allows you to finance up to 105% of the home’s sale price so that you don’t have to make a down payment upfront.

The Community Seconds program doesn’t have income requirements though it is intended for low- to moderate-income borrowers, and to qualify, borrowers must earn less than 120% of the median income for their area.

5. Affordable Seconds

Freddie Mac offers Affordable Seconds, which is very similar to Fannie Mae’s Community Seconds program. You can finance up to 105% of the purchase price of the home, which gives you the funds you need to cover the down payment and closing costs.

You’ll need to have a credit score of at least 660 to work with this loan type. This program has income requirements similar to the Community Seconds program.

6. Good Neighbor Next Door

The Good Neighbor Next Door program is offered through the U.S. Department of Housing and Urban Development (HUD). It helps workers in certain professional fields move forward with a home purchase.

Through the program, those in select professions can qualify for funding of up to 50% of the home’s list price. To qualify, borrowers are required to live in the home for at least 36 months. Plus, eligible properties are in revitalization areas, which often correlate with less-than-ideal neighborhoods.

Some of the professions that qualify for this program include law enforcement officers, teachers (pre-K through 12th grade), firefighters, and emergency medical technicians (EMTs).

7. Disabled buyer grants

If you have a disability, you may qualify for special home buyer programs. Some programs that offer assistance for disabled home buyers include VA loans, HUD Housing Choice Vouchers, and nonprofit home buyer assistance grants.

In addition to these programs, disability income can help you to qualify for a mortgage, so be sure to include it on your application.

8. Private lender grants

A handful of private mortgage lenders offer incentives to first-time home buyers. Typically, these programs are designed to help borrowers who might otherwise face additional hurdles to home ownership, such as lower incomes or limited savings for a down payment.

Some of the available grants from private lenders include Chase Bank DreaMaker grants of $5,550 and the Bank of America Community Affordable Loan Solution with no down payment requirement.

Keep in mind that these mortgage programs each have their own eligibility requirements. And typically, these loans are only available for buyers purchasing a single-family home.

9. Downpayment Toward Equity Act

There has been some recent buzz around a government grant program that would offer $25,000 in grant money to aspiring home buyers. A proposed congressional bill — the Downpayment Toward Equity Act of 2021 — would enable qualifying first-generation first-time home buyers to access a grant of $25,000.

The bill has not yet passed in Congress. However, if it passes, this sizable grant could be a huge boon for first-time home buyers.

Check your home buying eligibility. Start here (Sep 16th, 2024)

Who qualifies for first-time home buyer grants?

The requirements for first-time home buyer grants vary based on the specific grant program. That said, you’ll typically need to have a credit score of at least 620, a debt-to-income ratio below 43%, a reliable income, and two years of stable employment.

In addition to these requirements, many grant programs also have income limits. For example, several of the programs above require that your household income be less than 120% of the area’s median income.

In some cases, first-time home buyer grants require a minimum contribution from the borrower. For example, you might be required to contribute a percentage of the home purchase price or a few thousand dollars out of your own bank account. Plus, if you get a down payment grant, you’ll still likely need to pay for closing costs separately.

Finally, you’ll likely need to commit to a first-time home buyer education course. Although these are sometimes free, you might have to pay for a specific class before applying for your mortgage loan grant.

Other first-time home buyer programs

A first-time home buyer grant isn’t the right fit for every buyer. Here’s a look at some of the other assistance programs that could help you to purchase a new home.

• Down payment assistance programs: Down payment assistance (DPA) programs offer a second mortgage for a smaller amount to cover the down payment and closing costs. Typically, these loans come with lower interest rates.
• Deferred-payment loans: A deferred-payment loan gives you access to the funds you need for the down payment but you won’t have to start repaying the loan immediately. Depending on the loan, you might be able to start repaying it after you pay off the mortgage, refinance your mortgage, or sell your home.
• Forgivable loans: Some forgivable loans are available to cover your down payment costs. However, these often come with strings attached. For example, you might have to commit to living in the home as a primary residence for five years before the loan is forgiven.
• Zero down payment loan programs: Some home loans don’t require a down payment at all. With a zero down payment loan program, you can close on a home without putting down thousands of dollars.

As a home buyer, it’s helpful to compare all of your options. That’s especially true if this is your first mortgage. If you have specific questions, don’t be afraid to work with one of the counseling agencies available to home buyers. When you find the right fit, you’ll be ready to move forward with your home purchase.

First-time home buyer grants FAQ

Who qualifies as a first-time home buyer?

If you haven’t owned a home in the last three years, you qualify as a first-time home buyer for most purposes.

What is an NHA grant?

NHA grants, available through the Navajo Housing Authority, are available to help eligible borrowers become homeowners.

Which loan type is best for first-time home buyers?

The right loan type for first-time buyers depends on the details of their specific situation. For example, many first-time homebuyers will find their best option through the FHA loan program. That said, veterans are likely to find the best deals through the VA loan program (which requires no private mortgage insurance), while rural residents might find better options through the USDA loan program.

What is Biden’s $25,000 Downpayment Toward Equity Act?

The Downpayment Towards Equity Act would provide down payment assistance of up to $25,000 to first-generation first-time home buyers. As of January 2024, this bill has not become law.

Can I buy a house with zero money down?

Yes, some home loan programs allow you to purchase a home with zero money down. You’ll need to meet certain home buyer requirements to qualify but many 100% financing home loan programs offer great deals to buyers who are eligible.

The bottom line: Assistance is available for first-time homebuyers

As a first-time home buyer, you have access to a wide range of assistance options, and there are many ways to get the funds you need to finalize your home purchase.

Check your home buying eligibility. Start here (Sep 16th, 2024)

The post First-Time Home Buyer Grants | 2024 first appeared on My Mortgage Insider.

Of course, there are some eligibility requirements. But this rule change presents an opportunity for prospective homebuyers looking to purchase multi-family homes.

Check your home buying eligibility. Start here (Sep 16th, 2024)

Fannie Mae’s new down payment requirements for multi-family homes

In the past, Fannie Mae required down payments between 15 to 20 percent for owner-occupied multi-family houses. But starting the weekend after November 18, 2023, prospective buyers will only need to make a down payment of 5 percent for multi-family homes.

The new option is available for owner-occupied duplexes, triplexes, and quadplexes. As of writing, Fannie Mae has a maximum loan amount of $1,396,800 for properties with two to four units.

The new policy applies to HomeStyle Renovation, HomeReady, no cash-out refinances, and standard purchase loans.

Opportunities for prospective home buyers

A reduced down payment requirement could mean more opportunities for home buyers looking to lower their housing costs or build wealth through a property with income-generating potential. Essentially, this rule change makes it easier for savvy home buyers to pursue multi-unit property opportunities.

For example, let’s say you purchase a home with four units. You can live in one of the units and rent out the other three. The income produced by the three rented units could help to offset the cost of your mortgage payment or even completely offset your housing costs. In addition to offsetting your mortgage payment, you’ll have an opportunity to build equity in the property.

The catch is that you must be comfortable becoming a landlord to the other people living in your building. If you want to build a real estate portfolio, buying a multi-family property as an owner-occupant is a great place to start.

Some call this strategy ‘house hacking.’ Regardless of the label, purchasing a property with multiple units and renting out the extra space generates an extra income stream for the homeowner. As an owner and a landlord, you have a real opportunity to build wealth.

Check your home buying eligibility. Start here (Sep 16th, 2024)

How to decide if a multi-family property is right for you

The dream of homeownership looks different for everyone. But whether or not you’ve been dreaming of a multi-family property, it’s worth taking a closer look at the numbers to determine if this type of homeownership path is right for you.

Start by considering your financial situation. A single-family home might be calling your name. However, choosing a multi-family property could allow for more flexibility in your budget. Depending on your housing market, and the property you purchase, owning a multi-family property could lower your overall housing costs.

For example, let’s say that rent in your market is $1,750 for a two-bedroom apartment. You decide to purchase a four-plex and secure a monthly mortgage payment of $5,000. If you live in one unit and rent the other three, the income from your tenants would more than offset the cost of your mortgage payment. In fact, your tenants would pay a total of $5,250 ($1,750 x 3 units). Ultimately, this means you could get paid to live in your own home.

Of course, the numbers won’t work out positively in every market. But for many prospective homeowners, it’s worthwhile to explore the possibility of purchasing a multi-family unit in your area. It could mean that fewer housing costs are coming out of your budget, which could help you reach other financial goals more quickly.

Keep in mind that this strategy will necessarily mean becoming a landlord, which will require effort and financial preparedness. You’ll have to decide for yourself whether or not it’s worth it for your situation.

How to prepare for homeownership

Buying a home of any kind is a major financial decision. But buying a multi-unit property comes with even more factors to consider.

Use the following strategies to prepare yourself for homeownership:

• Evaluate your savings situation: Since a multi-unit property is a significant purchase, it’s critical to evaluate what the purchase would mean to your savings. In the best case, making a 5 percent down payment wouldn’t completely wipe out your savings. Instead, it’s best to keep an emergency fund on hand as you navigate the new responsibilities.
• Run the numbers: Every housing market is different. Before purchasing a multi-unit property, make sure that the numbers make sense for your situation. Research average rent prices and vacancy rates to avoid overestimating what the building could generate.
• Explore your loan options: Fannie Mae’s loan isn’t the only option for purchasing a multi-unit property with a minimal down payment. FHA loans also allow owner-occupants to make a down payment as low as 3.5 percent to purchase a multi-unit property.

If you are ready to move forward with homeownership, you’ll submit a loan application that details your financial situation.

Check your home buying eligibility. Start here (Sep 16th, 2024)

Fannie Mae 5% Down FAQs

Is 5% down enough for a mortgage?

For a single-family home, 5% is more than enough for a down payment for many home loan options. In the past, a 5% down payment was not enough to purchase a multi-unit property. But Fannie Mae’s recent rule change allows owner-occupants to put down as little as 5% on a property with two to four units.

Does Fannie Mae do multi-family loans?

Yes, Fannie Mae offers multi-family home loans. As of mid-November 2023, owner-occupants can put down as little as 5% on a multi-unit property with two to four units.

The bottom line

The recent change announced by Fannie Mae opens the door for more prospective homeowners to purchase multi-unit properties. A lower down payment could help you secure multi-family property to help you cut your own housing costs and build wealth.

Check your home buying eligibility. Start here (Sep 16th, 2024)

The post Just 5% Down for Multi-Family Homes | Fannie Mae Introduces New Rules first appeared on My Mortgage Insider.

A 30-year fixed-rate mortgage is the most popular home loan. But because the typical homeowner moves every eight years, a 5-year adjustable-rate mortgage may be a good option for some first-time home buyers. If you choose a 5/1 ARM but move within five years, you could benefit from a lower rate without ever having to worry about your loan adjusting.

Check your home buying eligibility. Start here (Sep 16th, 2024)

What is a 5-year adjustable-rate mortgage?

An adjustable-rate mortgage (ARM) is a home loan that offers a low interest rate for an introductory period, typically anywhere from three to 10 years. When that introductory period ends the rate can fluctuate, depending on market conditions — though in most cases, “fluctuate” means the rate goes up.

A 5/1 ARM, the most popular type, has a 30-year loan term in total. Your low intro rate is fixed for the first 5 years and can adjust once per year after that for the rest of the loan term. Similarly, a 7/1 ARM has a fixed rate for the first seven years and a 10/1 ARM for ten years.

Most ARMs have a cap on how high the rate can go.

ARMs are attractive to many buyers because initially, they offer lower mortgage rates than a fixed-rate loan. Depending on the introductory rate, the savings can be significant.

Let’s say you get a 30-year, fixed-rate mortgage of $300,000; your monthly payment would be about $1,610. In contrast, a 5-year ARM of $300,000 with an introductory rate of 4% would have a monthly mortgage payment of approximately $1,432. Over the course of the first five years, you’d save a total of around $10,680.

Pros & cons of a 5-year adjustable-rate mortgage

Pros of a 5-year ARM

A 5-year ARM offers these benefits:

• It has a lower initial interest rate and, therefore, a lower monthly mortgage payment in the early term than a fixed-rate mortgage.
• It allows you to save money that can be invested or put it towards financial goals like saving for retirement or paying off credit card debt.
• Because the initial rate is lower, you may be able to qualify for a more expensive home.

Click here to check 5-year ARM rates (Sep 16th, 2024)

Cons of a 5-year ARM

The primary drawbacks of a 5-year ARM include:

• The mortgage rate could increase substantially when the introductory period ends, raising your monthly mortgage payment.
• Your monthly payment may change frequently after the first five years, making it more difficult for you to manage your household budget.
• ARMs are more complex loan products with respect to fees, caps, and structures than fixed-rate mortgages.

When a 5-year ARM might be best

First-time home buyers are often good candidates for a 5-year ARM, since many entry-level buyers are looking for a starter home that they’ll live in for a few years before they upsize. That means their time horizon for how long they plan to own the home can align nicely with a 5-year ARM — and the monthly savings that comes with it.

ARMs are particularly attractive in today’s high-interest lending market, where the average 30-year fixed-rate mortgage clocked in at a 5.22% rate the week of August 11, according to Freddie Mac’s weekly Primary Mortgage Survey.

The average 5-year ARM, meanwhile, has a lower introductory rate of 4.43%. And some economists predict mortgage rates will rise even higher as the year goes on because of inflation and growing fears of a recession.

It’s no surprise, then, that demand for ARMs is up. According to the Mortgage Bankers Associations, ARM applications represented 7.4% of all purchase applications the week ending August 5, up from 3.1% at the beginning of the year.

A 5-year ARM can also be a wise option for a home buyer who is planning to sell their new home or pay off their mortgage in full within the first five years, before their loan’s low introductory interest rate expires.

Check your home buying eligibility. Start here (Sep 16th, 2024)

5-year ARM FAQs

Is a 5-year ARM a good idea?

A 5-year ARM may be a great option if you know that you’re going to sell your home, pay off the mortgage, or refinance within five years. Because the introductory rate is usually significantly lower than 30-year fixed mortgage rates, an ARM can save you a lot of money in interest over the first five years.

What is a 5-year ARM FHA loan?

FHA-backed mortgages are home loans secured by the Federal Housing Administration. They’re geared toward consumers with poor credit or little savings for a down payment; they only require a minimum 580 credit score and down payments can be as low as 3.5%.

The FHA offers what it calls “hybrid ARMs” — adjustable loans with a low initial interest rate for the first 3 , 5, 7, or 10 years. After the initial period, the interest rate adjusts. On a 5-year FHA adjustable-rate loan, the interest rate will increase one percentage point annually after the first five years, but the mortgage rate hikes are capped at five percentage points over the life of the loan.

Is an adjustable-rate mortgage recommended for first-time home buyers?

First-time buyers are often well suited for ARMs, mainly because they’re likely to move in a few years to a larger home, meaning they’ll be able to sell their house before their ARM’s interest rate can increase.

Is a 5-year ARM a conventional loan?

Generally, 5-year ARMs are conventional loans, meaning they conform to loan limits set by Fannie Mae and Freddie Mac. (ARMs offered by the FHA or Department of Veterans Affairs are an exception.) In most cities, a conventional/conforming loan is capped at $766,550 for a single-family home, though loan limits may be higher in areas with notably high home prices.

What are 5-year ARM rates?

According to Freddie Mac’s weekly interest rate tracker, the average 5-year ARM is typically 1 to 2 points lower than 30-year fixed rates. Though, of course, your actual rate may vary depending on factors like your credit score, loan amount, and down payment.

Click here to check 5-year ARM rates (Sep 16th, 2024)

The post Why 5-Year ARMs Could Be Perfect for First-Time Home Buyers first appeared on My Mortgage Insider.

As you weigh your options, it’s easy to find out about the advantages offered by first-time home buyer loans. But it’s equally important to consider the disadvantages before jumping into this major financial commitment.

Let’s take a closer look at the pros and cons of first-time home buyer loans so you can decide whether or not these are a good fit for your situation.

See if you’re eligible for first-time home buyer loan. Start here (Sep 16th, 2024)

What is a first-time home buyer loan?

First-time home buyer loan programs are set up at the federal and state level to provide a more affordable entry point into homeownership. In most cases, you are considered a first-time buyer if you haven’t owned a home in the last three years.

Popular first-time home buyer loans

As a first-time home buyer, there are plenty of mortgage options available. But here’s a look at some of the most popular home loans for new buyers.

• FHA loans – You don’t necessarily have to be a first-time buyer to get an FHA loan. But it is one of the most popular options for first-time buyers. Buyers only need to put down 3.5% and you can qualify with a minimum credit score of 500.
• HomeReady Mortgages by Fannie Mae – HomeReady requires a minimum down payment of 3% for first-time and repeat homebuyers. One of the extra perks of this program is that you can use income from a roommate to help you qualify for the mortgage.
• Home Possible Mortgages by Freddie Mac – Home Possible mortgages are designed for first-time and repeat buyers with relatively low incomes and credit scores. Like the HomeReady program, you can use income from a roommate to help you qualify for the mortgage. But you’ll need a credit score of at least 660.
• Local first-time buyer programs – Many states offer specialized mortgage options for first-time buyers through Housing Finance Agencies. Depending on your state, you might find a very attractive opportunity to make your dream of homeownership a reality.
• Specialized non-profit programs – Depending on your location, you might have access to specialized mortgages that offer low costs and attractive terms.

Pros and cons of first-time home buyer loans

As with all financial decisions, there are some pros and cons to consider before taking out a first-time home buyer loan. Here’s what you need to keep in mind.

Pros of first-time home buyer loans

Let’s start with the advantages.

• Lower down payment requirements: If you don’t have the money for a large down payment, first-time home buyer loans offer an opportunity.
• Less restrictive credit score requirements: Typically, you’ll find these loans have lower minimum credit score requirements. However, you cannot have a foreclosure on your report within the last three years.
• Less restrictive debt-to-income ratio (DTI) requirements: For example, the FHA loan generally allows a DTI of up to 43%. That’s a relatively lenient underwriting requirement.
• Low interest rates: Mortgage rates are typically lower for first-time home buyer loans. For example, FHA loans usually offer lower interest rates than conventional mortgages.

Cons of first-time home buyer loans

Now for the downsides to a first-time home buyer’s loan.

• Lower loan amounts: The loan limits on these loans may be lower than a conventional loan. For example, an FHA loan has a lower loan limit than a conventional loan.
• Mortgage insurance requirements: Although the low down payment option is attractive, you’ll be stuck with paying private mortgage insurance if you put down less than 20%. With an FHA loan, you’ll be stuck with PMI for the life of the loan if you put down less than 10% unless you refinance the loan.
• Income limits: At the state level, many first-time homeownership programs have income limits.
• Limited home equity to start: If you only put down 3.5%, you won’t have too much home equity to get started.

When to consider a first-time home buyer loan program

A first-time home buyer loan program isn’t the type of mortgage for everyone. Let’s explore when this home loan option might be right for you.

Although these loans are classified as first-time homebuyer options, that’s not necessarily true. Most federal and state first-time home buyer loan programs will work with you if you haven’t had any ownership interest in a property for the past three years.

If you meet that initial eligibility requirement, then the next step is to consider how much you want to put down for your home purchase. If you don’t have 20% to put down, then you’ll have to pay PMI whether you go with a first-time home buyer program or another loan type. But the more flexible credit requirements of a first-time home buyer program could be the foothold you need to make your homeownership dreams a reality.

Beyond the down payment, you’ll also need to consider the loan limits attached to first-time home buyer programs. These are significantly lower than conventional loan limits. So, if you were planning to buy in an expensive zip code, then a first-time home buyer loan might not be the right fit.

Pros and cons of first-time home buyers loan FAQ

Is it worth using a first-time home buyer loan?

A first-time home buyer loan comes with many financial benefits. First and foremost, the less stringent borrower requirements could help you obtain a home loan even with a relatively low credit score. It could be the difference between landing a new home and sticking to renting.

Beyond that, first-time home buyer loan programs can help you access down payment assistance grants and low-interest loans to cover closing costs. Depending on your situation, that could mean a big boost to your bottom line. Here’s where you can find out more about down payment assistance programs.

What should a first-time home buyer avoid?

The most important mistake first-time home buyers should avoid is buying more home than you can comfortably afford. You don’t want your monthly mortgage payment to eat up too much of your monthly budget.

Another thing to avoid is skipping a preapproval, especially in a competitive market. Preapproval doesn’t guarantee the lender will finalize the loan. But a preapproval can help you stand out from the crowd as a serious buyer that’s ready to close on a home.

In fact, most real estate agents will require this documentation upfront before helping you nail down a search for a home with the right purchase price.

Click here to start the preapproval process (Sep 16th, 2024)

What is the advantage of being a first-time buyer?

As a first-time buyer, you can tap into low down payment loans, down payment assistance programs and grants on forgivable loans. Although your eligibility varies based on your financial situation, first-time buyers have special access to perks that can save them money.

What are the pros and cons of an FHA loan?

An FHA mortgage is a government-backed loan through the Federal Housing Administration. It’s one of the most popular options for first-time home buyers. The major advantages of an FHA mortgage loan include a low down payment requirement, flexible credit standards and better interest rates. However, FHA loans come with higher mortgage insurance premiums and restrictive loan limits.

See if you’re eligible for first-time home buyer loan. Start here (Sep 16th, 2024)

The post Pros and Cons of First-Time Home Buyer Loans first appeared on My Mortgage Insider.

Prequalification is a useful tool to ensure you are shopping for homes within your price range. Here’s how to prequalify for a home loan as a first-time buyer.

Ready to get prequalified? Click here to start (Sep 16th, 2024)

What is prequalification?

Prequalification is an estimated amount a lender may be willing to loan you. The ballpark estimate is based on the information that you provide. Unlike a preapproval, you typically don’t need to supply financial documents for a prequalification, so it’s a quick and easy way to estimate your home buying eligibility.

How to prequalify for a home loan as a first-time buyer

If you want to prequalify for a home loan as a first-time buyer, the process might seem daunting. The good news is that’s a relatively straightforward step. 

Generally, you’ll answer a few questions through an online form or by phone. Afterward, the lender may issue a prequalification that includes a maximum loan amount and potential interest rate for your loan. 

It’s important to note that a prequalification offer is not binding. Instead, it’s subject to a further review of your financial details.

What’s the advantage of getting prequalified for a home loan?

Strictly speaking, it’s not necessary to get a prequalification. But if you skip this step, you might regret it. 

Although not a binding loan offer, a prequalification is very useful for home shoppers. The amount outlined in the letter can help you determine a realistic budget for your future home. With a prequalification, you’ll understand how much house you can actually afford based on your savings, credit score, and today’s interest rates. 

When kicking off your home search, understanding a realistic purchase price is critical. Otherwise, you could start your search looking for homes well above what you can realistically afford.

Ready to start home shopping? Start here (Sep 16th, 2024)

Prequalification vs preapproval

At some point during the home buying process, you’ll come across the terms prequalification and preapproval. Although some use these words interchangeably, they don’t mean the same thing. 

When you pursue a prequalification, the lender makes a decision on self-reported information. 

But when you apply for a preapproval, the loan officer will verify all of your information. During the process, a lender will verify your income, run a hard credit check and review all of the required supporting documents. With a better handle on your information, it’s easy to see why a preapproval carries more weight in the eyes of a seller. 

Neither a prequalification nor preapproval guarantees you a mortgage. But a preapproved buyer does have stronger footing. With that, many sellers are only willing to consider preapproved buyers.

Step-by-step guide to getting prequalified for a home loan

Ready to get prequalified? Here’s what you need to do:

• Gather your information: Collect your financial details including your income and credit score. 
• Research mortgage lenders: Check out who’s offering the best rates. You don’t want to overpay for this major purchase. Also, explore the types of mortgages you may want to pursue. 

• Complete an online prequalification process: Many lenders have an online form that requires the answers to several questions about your finances. Be prepared to provide information about your address, employment, income and more. 

• Use your prequalification as a guide: If you prequalify, use the possible loan amount as a guide for your home hunt. 

Note that prequalification is typically free and you’re not in any way bound to the lender you get prequalified with. So don’t worry that you’re making a final decision when you get prequalified; you can still shop around for lenders and rates before you make a final loan application.

Step-by-step guide to getting preapproved for a loan

A preapproval holds more weight when pursuing homeownership. That’s because the lender has verified the details of your financial information. Here’s how to get preapproved. 

• Gather your documents: A loan preapproval requires a suite of documents to confirm your financial details. Be prepared to provide W-2s, tax returns, pay stubs, proof of funds for your down payment, and your Social Security Number. 
• Find the right mortgage lender: It’s important to shop around for a preapproval. You’ll want to work with a reliable lender that offers attractive rates. 

• Submit the documents: The mortgage lender will require a copy of your financial documents. Be ready to answer any questions that pop up. 

• Use your preapproval letter: When house hunting, make sure to look at houses within your approved price range. If you are ready to make an offer, let the real estate agent know that you are preapproved. 

Requirements for pre-approval

If you want to secure a mortgage preapproval, the underwriting requirements vary a bit based on the loan type. But in general, here’s what you need:

• Proof of income: The lender wants to make sure that you can keep up with the monthly mortgage payments. Typically, this is in the form of a W-2, pay stubs or tax returns. 
• Proof of assets: At the very least, you’ll need to have enough cash on hand to cover the down payment and closing costs. Typically, you’ll need to provide bank statements to prove your eligibility. 
• Good credit: You can obtain an FHA loan with a credit score as low as 580. But a conventional home loan requires a minimum credit score of 620. A lender will check your credit report before providing a preapproval. 
• Employment verification: A lender wants to ensure your income is reliable. If you are self-employed the lender will want to learn more about your business. 
• Other documentation: Lenders will need your Social Security number, address and more to verify your information. 

First-time home buyer FAQ

Does a prequalification hurt your credit?

A mortgage prequalification should not hurt your credit. Depending on the lender, they may ask for a self-reported score or run a soft credit check. In either case, your credit score shouldn’t be impacted. 

How do I prequalify for a mortgage?

In order to prequalify for a mortgage, you’ll need to answer a series of questions posed by your lender. Be prepared to provide details on your income, employment history, and credit score. If the lender likes what they see, you’ll receive a prequalification letter. 

What’s the difference between prequalification and preapproval?

A preapproval involves significantly more documentation. Instead of relying on self-reported information, the lender will require documentation of your credit score, income, assets, and more. 

What factors are considered for preapproval?

During the preapproval process, lenders consider your credit history, credit score, income, assets, and debt-to-income ratio (DTI). The lender will use this information to determine how much it is willing to lend you for your new home purchase and estimate what mortgage rates they can offer. 

Why is it important to get preapproved?

Getting preapproved can help you determine an appropriate budget for your real estate search. Additionally, sellers often give preference to buyers with a preapproval in hand. 

Beyond budgeting while home shopping, a preapproval gives future homeowners a realistic look into the affordability of a home purchase. You’ll be able to learn more about the loan term options. Plus, ensure that your monthly income can comfortably support your expected mortgage payment.

Which loan option is best for first-time home buyers?

The right loan type for first-time home buyers depends on their unique situation. In some cases, government-backed loan programs are the right move. 

The FHA loan is a good option with more lenient credit requirements and a minimum down payment of 3.5%. But as a veteran or military member, the VA loan might be a better fit with a 0% down payment requirement. 

Finally, some buyers with excellent credit will find the most benefits from a conventional loan. The down payment can be as low as 3%. But you’ll face stricter credit requirements. Keep in mind that a down payment lower than 20% means you’ll have to pay mortgage insurance. Although not uncommon, it’s important to factor this cost into your budget. 

What credit score is needed for first-time buyers?

The credit score required for first-time buyers varies based on the mortgage loan type. Some FHA loans provide funding to borrowers with credit scores as low as 500, conventional loans require a credit score of at least 620, USDA loans require a credit score of at least 640 and VA loans don’t have a set credit score requirement. 

Ready to get prequalified? Click here to start (Sep 16th, 2024)

The post Prequalify for a home loan | First-time home buyer guide 2024 first appeared on My Mortgage Insider.