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Best Mortgage Lenders for First-Time Homebuyers | December 2022

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.

Finding the right mortgage lender is crucial, particularly when you are a first-time homebuyer. You need a mortgage lender that can guide you through the process and provide the best rates, the right terms and the lowest rates.

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.

Multiple loan options

If you haven't already noticed, there are several different types of mortgage loans, including:

  • Conventional loans - A 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 $548,250 in most counties).

The right mortgage loan for you will depend on your goals and financial situation. For example, you won't qualify for a USDA loan unless you plan 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.

Fixed vs. adjustable-rate mortgages

When it comes to mortgage rates there are two main types: fixed-rate and adjustable-rate mortgages.

  • 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).

Flexible 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 will consider borrowers with a credit score as low as 620. You can still apply for a mortgage if your credit score is lower, particularly if you qualify for a government-backed mortgage program.

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.

FAQs on Mortgages for first-time homebuyers

Which loan is best for first-time homebuyers?

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 downpayment 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. However, if you have at least 20% for a down payment, 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 the lending risk. If you have negative items on your credit history, you will probably pay higher interest rates or even get your loan application denied. 

What happens if a mortgage application gets rejected?

You will receive a declination letter from the lender if they deny your mortgage application. This letter is also called an adverse action letter. You are entitled to a copy of your free credit report if your application is denied

How do I get a low down payment 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 may offer low-down-payment programs to first-time buyers. Down payments of just 3% are common. Some lenders even offer mortgages with a 0% downpayment.

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