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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. That’s why we created the best mortgage lenders for first-time homebuyers list below to help you look at your options.
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 essential to know the objective of your search. There are several types of mortgages for first time buyers which are listed below.
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 specific 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 a qualified 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 an excellent credit score. As a result, it’s essential 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, uniquely if you qualify for a loan insured by a government agency.
Low down payments
While saving for a 20% down payment is ideal, it’s not realistic for many first-time homebuyers, especially if you’re struggling with massive student loan debt and other significant financial obligations.
So, finding a mortgage lender that offers low down payments, even on conventional loans, is an essential 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.”
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 wish to visit SuperMoney’s mortgage reviews page where you can compare dozens of lenders and find the one that fits your needs best.
1. Veterans United
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 statement 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 the technology.
3. Quicken Loans
And if you’re looking for an FHA loan, Quicken Loans happens to be the biggest FHA lender in the nation. 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 option can be a huge benefit to first-time homebuyers who don’t have any idea what they’re doing.
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.
5. 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 who do not have a great credit score but are financially responsible, 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.
FAQ on Mortgages for first-time homebuyers
Which loan is best for first time home buyers?
An FHA loan has lower down payment requirements and is easier to qualify for than a conventional loan. FHA loans are excellent for first-time homebuyers because, in addition to lower upfront loan costs and less stringent credit requirements, you can make a down payment as low as 3.5%.
What are the requirements for a first time home buyer loan?
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. FHA loans have one big catch called mortgage insurance. You’ll pay an upfront premium and annual premiums, driving up your overall borrowing costs.
How much is a down payment on a house for first time buyers?
FHA loans require just 3.5% of the purchase price as a down payment making them an attractive option for first-time buyers. If you do have at least 20% for a down payment then you can avoid mortgage insurance by using a conventional mortgage.
Can I be denied a mortgage due to overdrafts?
Issues such as bank overdrafts, late credit payments, too much debt and not enough income all raise lending risk. At minimum, riskier mortgage loan applicants end up paying higher interest rates or may even be denied.
What happens if mortgage application gets rejected?
If your lender denied your application due to an insufficient down payment amount, find out exactly what they require. If you can put down what they require, you can get your loan approved.
How do I get a low mortgage for a first time buyer?
Federal Housing Administration loans have a down payment as low as 3.5%. Conventional loans, which aren’t backed by the government, offer low-down-payment programs to first-time buyers. Down payments of just 3% are common. Some lenders will offer 0% down loans.
How much do you get for first home buyers grant?
You can receive up to $20,000 with the FHOG. If you are buying or building a new home valued up to $750,000, you may be eligible for a First Home Owner Grant (FHOG).
Which option is the best mortgage lenders for first-time homebuyers?
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 mortgage lenders for first-time homebuyers, 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. This applies to both to start and over the life of your loan.
Ben Luthi is a personal finance writer and a credit cards expert who loves helping consumers and business owners make better financial decisions. His work has been featured in Time, MarketWatch, Yahoo! Finance, U.S. News & World Report, CNBC, Success Magazine, USA Today, The Huffington Post and many more.