Thinking about buying your first home but are worried you won’t qualify? You may be surprised to learn that 33% of all home buyers are first-time buyers. So you’re not alone. But buying a home can be very intimidating.
In this article, we’ll cover first-time home buyer loan requirements and answer several common questions for first-time home buyers. With a bit of preparation and help from a trusted mortgage lender, you’ll be in your new home sooner than you think.
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Who is Considered a First-Time Home Buyer?
People who qualify must be a first-time home buyer. Shocking, we know. But there are some nuisances that might surprise you. You qualify as a first-time home buyer if any of these apply:
- You are buying your first home (the obvious answer)
- You qualify for a specialty first-time home loan (this is for specific groups we’ll discuss later)
- It has been at least three years since you owned a home (the three-year rule)
Several nonprofits and government loans recognize the three-year rule for defining a first-time homeowner. This rule enables people who previously owned a home but were hit with hard times, such as foreclosure, short sale, or bankruptcy, can get a second chance.
Still, aren’t sure if you qualify? Talk to the Loan Brothers to find out if you are eligible to be a first-time home buyer.
Related Link: Signs You’re Ready to Buy Your First House
First-Time Home Buyer Loan Requirements
If you’re a first-time home buyer, there are several types of loans you can apply for when purchasing a home. Many of these loans are gratefully more forgiving on their eligibility to help first-time borrowers.
Each of these loan types has specific loan requirements. But keep in mind that these loan rules are not stringent requirements. There is some flexibility. That’s why it’s essential to talk to your mortgage lender about which loan programs might be best for you.
Here are the basic requirements for these common first-time home buyer loan programs:
FHA Loan Requirements
A Federal Housing Administration (FHA) loan is a government-backed loan to assist first-time borrowers. This is a popular loan option for many first-time buyers because of its low requirements:
- Minimum Down Payment: 3.5%
- Minimum Credit Score: 580
- Maximum Debt to Income (DTI) Ratio: 50%
- Other Loan Specific Requirements: No income limit
Conventional 97 Loan Requirements
A Conventional 97 Loan got its name because it only requires a 3% down payment, leaving 97% loan-to-value (LTV) for the remaining mortgage balance. To qualify for this type of loan, you’ll need:
- Minimum Down Payment: 3%
- Minimum Credit Score: 620
- Maximum DTI Ratio: 43%
- Other Loan Specific Requirements: No income limit
Fannie Mae HomeReady Loan Requirements
The Fannie Mae HomeReady Loan is ideal for helping low-income buyers purchase their first home. To qualify for this loan, it will depend on your income vs. the location’s median income:
- Minimum Down Payment: 3%
- Minimum Credit Score: 620
- Maximum DTI Ratio: 45%
- Other Loan Specific Requirements: Your income <= 80% of your area’s median income
Freddie Mac Home Possible Loan Requirements
The Freddie Mac Home Possible Loan provides more flexibility and options for lower-income borrowers who want to buy their first home. This loan can offer some additional benefits compared to a Fannie Mae loan. To qualify, you’ll need:
- Minimum Down Payment: 3%
- Minimum Credit Score: 660
- Maximum DTI Ratio: 45%
- Other Loan Specific Requirements: Your income <= 80% of your area’s median income
VA Home Loan Requirements
Issued by the Department of Veteran Affairs, a VA Home Loan is a zero-money down mortgage for military service members. The requirements for this specialty loan include:
- Minimum Down Payment: 0%
- Minimum Credit Score: 580-620
- Maximum DTI Ratio: 41%
- Other Loan Specific Requirements: No income limit; Must have an eligible history of military service
USDA Home Loan Requirements
A USDA Home Loan helps low to moderate-income borrowers to purchase a home in eligible rural areas. The program provides a 90% loan note guarantee, which doesn’t require a down payment to purchase from the home buyer. To qualify, you’ll need:
- Minimum Down Payment: 0%
- Minimum Credit Score: 640
- Maximum Debt to Income (DTI) Ratio: 41%
- Other Loan Specific Requirements: Your income <= 115% of your area’s median income; Must buy a home in an eligible rural area
FHA 203(k) Rehab Loan Requirements
The FHA 203(k) Rehab Loan is a specialty government-backed loan to help home buyers that want to wrap renovation costs and home price costs into one loan. To qualify, you’ll need:
- Minimum Down Payment: 3.5%
- Minimum Credit Score: 580
- Maximum DTI Ratio: 45%
- Other Loan Specific Requirements: Minimum of $5,000 in rehab costs
Special Circumstances First-Time Home Buyer Program Requirements
Some loan programs for first-time buyers are specific to your occupation or location. VA loans are only available to US military veterans, active-duty members, reservists, or National Guard members. Other loans exist only for public servants like firefighters or teachers. While other programs like USDA Home Loans are for homes in rural areas.
If your occupation or the location of the home you want qualifies for a special circumstance loan, you’ll want to talk to the Loan Brothers to apply for these types of loans.
Related Link: How to Get a Veteran Home Loan
First Time Home Buyer Grant Requirements
First-time home buyer grants help pay your down payment and closing costs and don’t need to be repaid. These grants typically pay about 4% of the home price and may offer additional money to help with closing costs. A grant can be a huge help when getting started.
To apply for a grant, you’ll need to find out the qualification requirements for your area because these requirements can vary depending on where you want to buy. Most grants will want a higher credit score of at least 640 and may be limited based on your family size or location. Talk to your trusted mortgage lender to find out if grants are available in your area.
What is the first step in getting approved for a home loan?
The first thing you will want to do is apply for a mortgage pre-approval. To apply, talk to your lender, and they will assess how much they will lend you based on your income, credit score, and assets. During pre-approval for a first-time home buyer loan, your lender can also lock in an interest rate.
How much credit do you need to buy a house for the first time?
For most first-time home buyer loans, you’ll need a credit score of at least 580. But you need to know that the better your score, the more flexible the requirements will be. And a high credit score will help you qualify for a better interest rate.
So it is imperative to monitor and manage your credit score. Pay bills on time and be responsible with your credit. When you have a high credit score, the mortgage lenders will be more accommodating, and you’ll qualify easier.
How long does it take for a home loan to be approved?
A typical first-time home buyer loan will take about 30 days to be approved. But keep in mind this process can last a couple of months if there are discrepancies or problems with your application. Market conditions can also affect loan approval.
Explore All Your Options When Buying a Home for the First Time
It really is essential to talk to a lender to find out all the first-time home buyer loan options you can qualify for. Getting pre-approval on a loan is a great first step toward buying a home. It may feel overwhelming, but that’s when using a trusted mortgage lender like Mares Mortgage can really help.
Want to start the preapproval process? Contact us to find out what loan options are available to you.
Related Link: First Home Buying Guide: Tips and Tricks