4 Popular Loan Programs for First-time Homebuyers

There’s nothing I find more gratifying than helping an individual or couple secure a mortgage to buy their very first home. As a professional home loan shopper for nearly 30 years, I’ve helped hundreds move into their dream homes — and seeing their excitement never gets old.

Along the way I’ve developed a storehouse of knowledge about the many loans and programs that are tailored just for those who need a little help on the road to homeownership. Good news: There are many to help low and moderate income earners get into their first home.

Here’s a look at the programs that are popular with first-time homebuyers in our area.

#1 FHA Loan

If you haven’t saved up a lot of cash for a down payment and have a less-than-stellar credit record, this could be the loan for you. Insured by the Federal Housing Administration, or FHA, these loans typically require smaller down payments and lower credit scores as compared to most conventional loans. First-time homebuyers can buy a home with a minimum credit score of 580 and as little as 3.5 percent down, or a credit score of 500 to 579 with at least 10 percent down. There’s a catch: You’ll have to pay mortgage insurance, including an upfront payment and monthly premiums.

Note: While the scores above represent FHA minimum credit scores, lenders will often times have credit score overlays that require a higher score.

#2 USDA Loan

You don’t have to live on a farm to qualify for 100 percent financing with a United States Department of Agriculture (USDA) mortgage. Yes, the loan is for those who wish to live in rural areas, but the USDA’s definition of “rural” is so broad that even some suburban locations are eligible. The most popular USDA program for first-time homebuyers is the Single Family Housing Guaranteed Loan Program for Americans who earn moderate to low incomes. It is a low-interest loan that requires zero down payment but you’ll have to pay a monthly mortgage insurance premium.

#3 VA Loan

If you are active duty military or a veteran, this is a benefit you should explore. This loan, which is backed by the U.S. Department of Veteran Affairs, has minimal closing costs and a zero down payment. A funding fee is required, but it can be rolled into your loan costs (and some service members may be exempt from paying it).

Thumbs up: This loan requires no monthly mortgage insurance or minimum credit score.

#4 Fannie Mae or Freddie Mac

Sure, the names are a little goofy, but these government-sponsored entities offer some good loan opportunities for the first-time homebuyer with strong credit and a stable income. Both programs require a minimum down payment of 3 percent. Homebuyers also need a minimum credit score of at least 620 and a relatively unblemished financial and credit history to qualify. Fannie Mae accepts a debt-to-income ratio as high as 50 percent in some cases. Monthly mortgage insurance is required, too.

Thumbs up: Mortgage insurance payments can be canceled once your loan-to-value ratio drops below 80 percent.

This is just a sampling of the home loan programs available for first-time homebuyers. To find the program that best fits you, schedule a meeting with a home loan shopper at A Mortgage Boutique [amortgageboutique.com]. We can find the program that’s just right for your goals and financial situation.

Jeannine Dalton is a personal home loan shopper with A Mortgage Boutique, headquartered in Murfreesboro, TN. She uses her more than 30 years of experience in the mortgage industry to help homebuyers secure home loans easily and quickly. Jeannine can be reached at 615-622-7600 or jeannine.dalton@amortgageboutique.com.