Best Lenders for First-Time Home Buyers
Purchasing a first home is both rewarding and challenging. Unlike existing homeowners, first-time buyers are at a disadvantage because they can’t borrow against the home equity. Thankfully, there are alternative options for those looking to buy their first house or an apartment.
Mortgage lenders for first-time buyers offer various options, and most aspiring homeowners appreciate the low credit score requirements and modest down payment. That’s why we’ve included government-insured mortgages like FHA, VA, and USDA loans alongside more conventional loans.
Better.com, a company founded in 2014, is an exclusively online operating lender. Applicants can expect to get pre-approved in as little as three minutes, as the process is streamlined for buyers’ convenience. Unfortunately, it doesn’t offer VA and USDA loans at the moment. Affordable FHA loans are available for Better.com users, and it requires a credit score of 620 at least for any of its loans.
- •Fast pre-approval
- •Completely online process
- •No commission
Rocket Mortgage has a streamlined and convenient online application process that informs you how much you can borrow within minutes. The company offers conventional, FHA, and VA loans with adjustable and fixed rates. If you need a larger sum of money than those offered within the federal standard, the company provides jumbo loans too. A credit score of 580 or higher is enough to get approved by Rocket Mortgage. The company was crowned by J.D. Power with the highest customer service satisfaction rating in the US for eight years in a row.
- •Straightforward online applications
- •Easy access to loan experts
- •High customer satisfaction
Ally bank has a house lending program for first-time homeowners associated with The Federal National Mortgage Association, widely known as Fannie Mae. Currently, the bank doesn’t have any other loan types aside from this program. However, even borrowers with low funds and an excellent credit score can apply for a 30-year fixed-rate program with a down payment of only 3%. Applicants can use the bank’s web page to complete quick online applications while creating savings options on private mortgage insurance.
- •No lender fees
- •Fast pre-approval process
- •Low down payments for Fannie Mae HomeReady program
Bank of America, one of the largest banks in the world, has intriguing mortgage options for first-time homebuyers. Applying online through the bank’s application or website speeds up the process, especially if you already have an account with the bank. Being a client also qualifies for a $600 reduction in origination fee. Aside from fixed and adjustable-rate mortgages, you have multiple other lending options like HELOC. The bank has branches throughout the country and is accessible both online and through brick and mortar establishments.
- •One of the biggest banks in the world
- •Discounts for existing customers
- •Home equity loans available
Truist Financial Corporation is the sixth-largest commercial bank in the US and is the product of a 2019 merger between BB&T and SunTrust. The union is expected to be complete by 2022, and in the meantime, aspiring homeowners can still apply for a mortgage through both banks. The bank offers significant benefits for borrowers in rural areas, especially veterans, as they offer VA loans with a 0% down payment requirement.
- •Variety of mortgages and other types of loans
- •Quick online estimates and applications
- •Low down payments
Co-founded in 2008 by former NFL player Casey Crawford, Movement Mortgage is another great online lender for aspiring homeowners. Even if you have a poor credit score, you have multiple loan options. Both fixed and adjustable-rate terms with refinancing options offer plenty of flexibility for paying off your mortgage. Movement Mortgage is available in all 50 states, and you can apply online and see what they have to offer. The company invests a lot of its profits in community projects and schools through the Movement Foundation.
- •Multiple loan options
- •Available across the US
- •Profits go to charitable causes
Guide for First-Time Homebuyers
Buying your first home isn’t easy. Aspiring homeowners don’t have the best credit score or access to assets to allow them to place a substantial down payment for their new home. Thankfully, there are some affordable options from federal agencies and mortgage lending firms.
Loans Types for First-Time Home Buyers:
Most mortgages in the US are not backed by government organizations, and these are commonly referred to as conventional loans. They have more demanding qualification requirements than other loans. But these can be the best first-time buyer mortgages for clients with high credit scores.
If you can’t afford at least a 20% down payment, most lenders will require you to cover the private mortgage insurance or PMI cost, piling additional charges onto your loan.
Federal Housing Administration or FHA loans are the top choice for aspiring homeowners who need to improve their credit score. You’ll still need a minimum 580 FICO score to get the 96.5% financing and 3.5% down payment.
Another requirement for such a low down payment is to cover the costs of two mortgage insurance policies.
If your credit score is below 580, you’ll have to provide a larger down payment. This means that you are still eligible. Even if your score is around 500, you’ll just have to provide 10% of the home’s price as a downpayment.
The downside of FHA loans is that the insurance premiums are mandatory most of the time.
The US Department of Veterans Affairs guarantees VA mortgages.
If you’re an active or retired member of the US military or related to one, you should be looking for the best mortgage lender for first-time buyers that offers VA loans.
These loans have low interest and require no down payment or insurance policies. The seller can cover the closing cost of such loans, and there is no penalty for paying off the loan early.
The US Department of Agriculture guarantees these mortgages in pre-approved rural areas. Borrowers also need to have an income below a certain threshold to be eligible for some of the best home loans for first-time buyers, especially if you want to avoid large down payments.
Like other government-backed loans, you’ll need more paperwork and documents to prove your eligibility.
Loans that surpass the federally mandated mortgage limits are called Jumbo mortgages. These loans require high FICO scores of 700 or more, and on rare occasions, lenders may accept a minimum of 660.
These are rarely going to be the first choice for people looking to buy their first home.
Fixed-Rate and Adjustable-Rate Mortgages
Depending on your financial situation, you need to choose between a fixed or adjustable rate for your mortgage.
Opting for a fixed rate is an excellent choice if you get a reasonable offer, as it won’t change for the duration of the mortgage. Another benefit is always knowing exactly how much your monthly rate will be.
Adjustable-rate is advantageous for buyers that expect their finances to improve. Starting your mortgage with a more affordable rate that increases gradually alongside your income is an excellent option, especially for first-time homebuyers.
How to Qualify for a Loan
There is no specific difference between applying for your first or subsequent home. However, much of the same criteria still apply to determine your eligibility.
Checking your credit score is the first step for each lender. The process involves getting the figures from all three credit unions and using the average value as a qualification reference point.
All loans except for VA or USDA guaranteed ones require a down payment. Conventional and FHA loans have more affordable options, and if you received a down payment as a gift, you need to have appropriate documentation as proof of origin.
Lenders use DTI to determine if their clients can regularly cover monthly mortgage costs. Lenders may calculate DTI in different ways, but there is a general consensus that mortgage payments shouldn’t be higher than 45% of your income pre-tax.
Stable employment is an important factor for lenders. It shows the borrower’s ability to maintain regular payments. There are exceptions to this rule, especially if the buyer secured a higher education degree in less than two years.
Any financial or material assets are an additional incentive for the lender to approve your mortgage. Savings on your bank account can help you get approved for the loan.
Mortgage Lenders for Aspiring Homeowners in 2022 - Fortunly's List
- Better.com - Suitable for low fees and closing costs
- Rocket Mortgage - Suitable for affordable online mortgage applications
- Ally - Suitable for low mortgage insurance costs
- Bank of America - Suitable for low and medium-income buyers
- BB&T (Truist) - Suitable for low down payments
- Movement Mortgage - Suitable for low credit scores
What type of loan is best for a first-time homebuyer?
An FHA loan is one of the best options for a prospective homeowner. With a low down payment requirement of 3.5% and affordable interest rates, they are safer and better than conventional loans.
What programs are available for first-time homebuyers?
Depending on your status as a first-time homebuyer, several programs backed by the government may be a convenient option. These are FHA, USDA, and VA mortgages.
What else should I consider when getting a mortgage for my first home?
Planning monthly costs tops the list of factors for future homebuyers to consider.