For first-time buyers who previously thought home ownership wasn’t achievable or affordable, this couldn’t be further from the truth. In addition to favorable market conditions, there are several conventional and government-backed loans available for home purchase and renovation projects.
With interest and mortgage rates at all-time lows, and many sellers and buyers currently moving forward due to modified novel coronavirus (COVID-19) restrictions, there are more available options than ever.
Let’s review various loans geared toward first-time home buyers for both home purchase and renovation projects.
While typically designed with first-time buyers in mind, those who previously owned or foreclosed on a home might also be eligible per U.S. Department of Housing and Urban Development (HUD) guidelines. These include various government-backed and conventional loans with less-stringent requirements, such as lower credit scores and debt-to-income (DTI) ratios, and reduced down payments and closing costs.
It’s also important to work with a lender that’s qualified to offer government-backed loans, such as Contour Mortgage.
While some requirements could be more lenient than others, you’ll still need to provide financial information,* such as:
- Employment History
- Credit Reports
- Recent Bank Statements & Federal Income Tax Returns
- W2 Statements
- Pay Stubs
- Any Additional Financials
- *Certificate of Eligibility (for VA Loan Applicants)
JFirst-time home buyers can choose from several government-backed loans offered through the Federal Housing Administration (FHA), U.S. Department of Agriculture (USDA), and Veterans Affairs (VA) for active and retired U.S. military personnel.
Other suitable financing includes conventional loans through secondary mortgage lenders Fannie Mae and Freddie Mac.
Those pursuing a fixer-upper or rehab property could be eligible for FHA 203(k) loans, Fannie Mae HomeStyle, or Freddie Mac Renovation Mortgages.
With benefits ranging from lower credit ratings and DTI ratios, first-time home buyers can take advantage of government-backed loans—even if they previously experienced bankruptcies or foreclosures.
Higher credit scores and at least a 20 percent down payment can possibly reduce or remove additional expenses, such as private mortgage insurance (PMI) or upfront mortgage insurance premiums (UFMIP), closing costs, and other payments.
Learn more about the following government-backed loans offered through Contour Mortgage:
Available with down payments as low as 3.5 percent, these are usually 30-year, fixed-rate mortgages. Borrowing limits vary from state to state, so it’s best to consult the online FHA Mortgage Limits Tool for specific amounts.
These assumable loans can also be transferred from the previous owner to new buyer, provided both are backed by the FHA.
Available for homeowners in rural and sparsely populated communities, USDA loans are backed by the Rural Development Guaranteed Housing Loan Program.
Requirements include home purchase of up to 2,000 square feet, two years of steady income and credit history, and a balanced DTI ratio.
Unlike FHA loans, borrowers aren’t required to purchase PMI or UFMIP, and there’s no minimal down payment.
Designed for active and retired U.S. military personnel, VA loans can finance new home purchases or improvement projects.
Similar to USDA loans, these don’t require a minimum down payment or mortgage insurance. Additional benefits include lower closing costs and DTI requirements, and credit counseling.
Existing VA loans acquired after March 1, 1988 can also be assumed by qualified borrowers.
Designated for rehab or renovation projects, 203(k) loans are guaranteed by the
FHA under two specified types: Standard and Limited. The former is best for major repairs on a primary residence; the latter is suited for less extensive cosmetic upgrades.
Fannie Mae & Freddie Mac
While not insured by the U.S. government, both Fannie Mae and Freddie Mac are mortgage-backing entities aiming to boost the housing market with first-time home buyer programs. They are officially the Federal National Mortgage Association, and Federal Home Loan Mortgage Corporation, respectively.
Similar to aforementioned government-backed loans, these can be applied to home purchase or renovation projects. Known as the largest backers of the secondary mortgage market, both Fannie Mae and Freddie Mac purchase loans from financial institutions and lenders.
Offering fixed- and adjustable-rate mortgages (ARM) for first-timers, many Fannie Mae- and Freddie Mac-secured loans are available with down payments as low as 3 percent, and reduced DTI ratios.
With several products available through both organizations, first-time home buyers of single-family and multiple-unit properties can also add renovation costs to their mortgage.
Learn more about the following Fannie Mae and Freddie Mac renovation loans offered through Contour Mortgage:
Fannie Mae HomeStyle
According to the HomeStyle Renovation Mortgages: Loan and Borrower Eligibility requirements, borrowers aren’t permitted to exceed 75 percent of the as-completed property value.
Available as both a fixed or ARM option, HomeStyle includes repair contingencies and can also be combined with other Fannie Mae products.
Freddie Mac Renovation Mortgages
Suited for first-timers requiring flexible or permanent financing, this loan also boasts lower down payments and less-stringent credit requirements. Unlike other renovation mortgages, Freddie Mac doesn’t require project consultant approval, and borrowers aren’t required to move in immediately after closing.
If the home is located in an area prone to natural disasters, this loan will cover improvements, such as storm-surge barriers and foundation security. Damages from previous occurrences could also be included.
Homes that are uninhabitable or in foreclosure might also qualify borrowers up to six months of down payment credits during the renovation process.
Pre-Approval Questions & Answers
With many available loan products designed for first-time home buyers, it’s best to contact a Contour Mortgage representative for professional guidance and help with requirements and processes.