If you’re buying a home for the first time, you’re probably feeling a little overwhelmed. The process can be complicated even for repeat homebuyers. But one thing that doesn’t have to be complicated is choosing the right mortgage lender.
To help you, we’ve put together a list of the best mortgage lenders for first-time homebuyers so that you can compare them and find the right one for you.
What to look for in a mortgage as a first-time homebuyer
There are thousands of mortgage lenders out there and each of them wants your business. If you want to zero in on the right one, it’s important to know what you’re looking for.
Several loan options
If you haven’t already noticed, there are several different types of mortgage loans, including:
- Conventional loans – A vanilla mortgage that isn’t guaranteed or insured by a government agency.
- FHA loans – A loan insured by the Federal Housing Administration; allows you to do a down payment as low as 3.5%.
- VA loans– A loan insured by the U.S. Department of Veterans Affairs; allows past and present members of the military and their families to get loans with a down payment as low as 0%.
- USDA loans – A loan insured by the U.S. Department of Agriculture; allows people who are purchasing a home in an eligible rural area to get loans with a down payment as low as 0%.
- Jumbo loans – A specialty loan that allows you to borrow more than the conforming loan limits set by the Federal Housing Finance Agency (currently $453,100 in 2018).
The right mortgage loan for you depends on whether you have certain special qualifications. For example, you won’t qualify for a USDA loan if you aren’t planning to buy a home in an eligible rural area. And you won’t have an option to get a VA loan unless you’re an eligible member of the military community.
When it comes to mortgage rates and repayment terms, you can also choose between a couple of options:
- Fixed-rate mortgage: This loan offers a fixed interest rate for the life of the loan, which is typically 15, 20, or 30 years.
- Adjustable-rate mortgage (ARM): This loan offers a fixed rate for a period, then it becomes adjustable. For example, a 5/1 ARM offers a fixed rate for five years, then the rate can change based on current market rates once a year (though certain maximums apply).
Relaxed credit requirements
If you’re buying a home for the first time, your credit history might not yet be established enough to have a great credit score. As a result, it’s important to know where to go to get a reasonable rate for someone with less-than-stellar credit.
Most conventional mortgage lenders can go as low as 620, but some can go even lower, especially if you qualify for a loan insured by a government agency.
Low down payments
So, finding a mortgage lender that offers low down payments, even on conventional loans, is an important factor to consider.
Getting ready for your mortgage loan
“All mortgage loan transactions are linear and are a snapshot of who you are the moment your credit gets run,” says Andy Elder, a mortgage broker for 1st Securities Mortgage in Bingham Farms, Michigan. “Being proactive months in advance can help improve your credit score, which will, in turn, improve your loan’s interest rate.”
Elder also recommends beefing up your down payment to make your loan less risky to the lender. This can also result in a lower interest rate.
The best mortgage lenders for first-time homebuyers
This article lists five lenders you may want to consider when buying your first home. However, you may want to visit SuperMoney’s mortgage reviews page where you can compare dozens of lenders and find the one that fits your needs best.
Founded in 2002, Veterans United has quickly become the top mortgage lender for VA loans. While the VA doesn’t require a minimum credit score for its insured loans, Veterans United does require a credit score of at least 620.
If your credit isn’t good enough, though, you can participate in the lender’s Lighthouse Program, which helps potential borrowers build their credit to a point where they can get approved.
The lender doesn’t require a down payment, and you don’t have to worry about paying private mortgage insurance, though there is a VA funding fee that can get pricey.
The lender offers loans in all 50 states. If you’re a member of the military community and qualify for VA loans, Veterans United should be on your radar.
Originally a student loan refinancing company, SoFi has branched out to offer personal loans and mortgages.
One thing that sets SoFi apart from the competition is that you can get a mortgage with no PMI with just a 10% down payment. Almost every other conventional lender requires a 20% down payment to do that.
SoFi also doesn’t charge any lenders fees, which can be 1% to 2% of your loan amount. The lender also considers people with a non-traditional credit history. This means that you don’t have to have an exceptional credit score to get approved.
SoFi will check many other aspects of your financial history to come to a decision. And lastly, the entire process is online, making it easier for younger first-time borrowers who are familiar with technology.
If you want a fully online mortgage process with several options, Quicken Loans is the place to go. The lender is the largest online mortgage retailer in the country and offers a wide variety of options.
And if you’re looking for an FHA loan, Quicken Loans happens to be the biggest FHA lender in the nation, online or not. For conventional loans, you can put down as little as 3%. You’ll also get a lot of flexibility when choosing your loan term and interest rate structure.
Lastly, the Quicken Loans Rocket Mortgage application makes the mortgage application, approval, and closing process simple and straightforward. This can be a huge benefit to first-time homebuyers who don’t have any idea what they’re doing.
Another major online mortgage lender, loanDepot offers a fully-automated online process that results in 50% faster closing times than the national average.
In addition to the online process, you can have access to one of more than 1,700 licensed loan officers who can help answer your questions. LoanDepot offers most of the major mortgage loan types — except for USDA loans — and credit scores can vary depending on the loan you want.
If your credit is in the fair range and you’re not sure you’d qualify for a mortgage at all, try New American Funding.
The lender will first run your application through its automated underwriting system. But if it’s not enough to get you approved, it can also do some manual underwriting to try to make things work.
This means that you have an actual loan officer look at your application and gather more information. For many people who don’t have a great credit score but are extremely responsible with their money, this process is a boon.
And if you need help with a down payment, New American Funding can help with multiple down payment assistance programs and grants.
Which mortgage lender is right or you?
As a first-time homebuyer, it’s easy to get overwhelmed by all of the options you have before you. If you’re looking for the best first-time homebuyer loan, it’s important to know what you want.
Before you apply for a mortgage, take some time to consider the type of loan you want, how you want your interest rate to be structured, and what other features you’re looking for.
“Consumers should be proactive with the loan process,” says Elder. “Consult with an experienced mortgage professional early in the process.”
Then compare these mortgage lenders with other top mortgage lenders. In addition to the things already mentioned, look at the interest rates they offer. While market rates tend to drive mortgage rates as a whole, each lender has its own ways of assessing risk. As a result, some lenders may charge higher interest rates than others.
Elder recommends working with a mortgage broker to improve your chances of getting a low interest rate. “The consumer will most likely get a better interest rate and have lower closing costs on any broker-originated loans,” he says. “This is due to fixed compensation. A broker’s maximum is 3%, while most retail shops price at about 5%.”
As you do your research and take the time to pick the right lender, you’ll be much better off as you finance your new house, both to start and over the life of your loan.