Mortgage Options For First-Time Borrowers, From The Experts At Green Sprout
Buying a house for the first time can be very stressful, and Green Sprout knows this. This is why the experts at Green Sprout have researched and gotten the best mortgage options for first-time borrowers. The details can be seen below.
Who Qualifies As A First-Time Home Buyer?
A first-time home buyer isn’t a homeowner or an investor, nor are you re-mortgaging a previous home. So, generally, you must not have owned a house before or have a property to sell.
How Much Does The Bank Lend First-Time Buyers?
As a first-time buyer, you will find many money lenders willing to allow you to borrow up to 4 or 4.5 times the size of your annual salary. In rare cases, some will offer 5 to 7 times the amount.
Mortgage Options Available For First-Time Buyers
Federal Housing Administration (FHA) Loans
The Federal Housing Administration is easy to qualify for and has a low down payment. In addition to the lower up-front loan costs and not-so-high credit requirements, the down payments get as low as 3.5%. Thus, making them great for first-time buyers.
This, however, depends on your credit score. The minimum credit score for FHA loans ranges from 500-580. Those with credit scores of 580 and above are eligible to make a subsidized down payment of only 3.5%, while 500-579 may be required to pay up to 10% in down payments.
However, all borrowers must pay a mortgage insurance premium to protect the lender if the borrower cannot pay back for any reason.
The federal government does not insure these types of loans. They have a lot of strict requirements, and this makes them difficult to qualify for.
Although they require higher credit scores, less debt-to-income ratio, the potential for private mortgage insurance, and larger down payments, they still cost less than federal government-guaranteed loans.
U.S. Department Of Agriculture (USDA) Loans
This loan does not require a down payment and offers 100% financing. The loan is for those seeking to purchase homes in designated rural areas. The loan does not require private mortgage insurance but has a 1% upfront funding fee at the closing point and a 0.35% annual fee.
U.S. Department of Veteran’s Affairs (VA) Loan
The VA loan does not give out loans to everyone but guarantees those by qualified lenders. The loans are targeted at helping active or retired veterans or their spouses obtain home loans with good terms. They are usually easy to qualify for.
Special Programs For First-Time Buyers
Individual Retirement Accounts
Green Sprout shares that all first-time home buyers can take up to 10,000 dollars out of an Individual Retirement Account (IRA) without needing to pay the early withdrawal penalty. However, you still have to pay income tax on the money withdrawn.
Ready Buyer Program
The Federal National Mortgage Association has a program called Ready Buyer that provides up to 3% assistance towards closing costs on purchasing their property (foreclosed property owned by Fannie Mae). This is specially designed for first-time buyers.
Down Payment Assistance Programs
Down payment assistance programs for first-time buyers are available in some states. The program is mainly for civil servants and persons who earn low incomes.