Editor’s Note: This blog post was originally published in April 2021 and has been revised to reflect industry updates.
If you’re a first-time home buyer and thought you might never own or afford your dream home, this couldn’t be further from the truth! There are several conventional and government-backed loans for traditional home purchases, not to mention fixer-upper or rehab projects.
Even if you previously owned or foreclosed on a home, you could still be eligible per U.S. Department of Housing and Urban Development (HUD) guidelines. These include loans with less-stringent requirements, such as lower credit scores and debt-to-income (DTI) ratios, and reduced down payments and closing costs.
For government-backed loans, it’s important to work with an approved lender, such as Contour Mortgage.
Let’s review various loans geared toward first-time buyers for both home purchase and renovation projects.
First-Time Home Buyer Loan Qualifications
While some first-time home loan eligibility requirements could be more lenient than others, you still must provide qualifying 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)
Mortgages for First-Time Home Buyers
First-timers 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.
FHA 203(k) loans, Fannie Mae HomeStyle, or Freddie Mac Renovation Mortgages are all wise choices for a fixer-upper or rehab property.
Government-Backed Home Loans
First-time home buyers can take advantage of government-backed loans with lower credit ratings and DTI ratios requirements—even if they previously owned a home, or 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 fees.
Learn more about the following government-backed loans offered through Contour Mortgage:
FHA Home Loans
Boasting down payments as low as 3.5 percent, these are usually 30-year, fixed-rate mortgages. Borrowing limits vary by state, so it’s best to consult the online FHA Mortgage Limits Tool for specific amounts. UFMIPs and annual fees are also required—the former is 1 percent of the loan, the latter 0.35 percent of remaining principal.
Provided both are FHA-backed products, these assumable loans can also be transferred from the previous owner to the new buyer.
Available For homeowners in rural and sparsely populated communities, these 30-year, fixed-rate loans are sponsored 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. Similar to FHA loans, there’s no minimum down payment, and borrowers aren’t required to purchase PMI. However, you will be required to provide both UFMIP and annual fees.
Designed for active and retired U.S. military personnel, VA loans can finance new home purchases or improvement projects. Similar to other government-backed loans, these don’t require a minimum down payment or PMI. Additional benefits include lower closing costs and DTI requirements, and credit counseling.
Similar to USDA Loans, existing VA products acquired after March 1, 1988 can also be assumed by qualified borrowers.
Fannie Mae & Freddie Mac Conventional Mortgages
The largest backers of the secondary mortgage market, both Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) purchase loans from financial institutions and lenders. Both are mortgage-backing entities aiming to boost the housing market with first-time home buyer programs.
As fixed- and adjustable-rate mortgages (ARM), many Fannie Mae- and Freddie Mac-secured loans are available with down payments as low as 3 percent, and reduced DTI ratios. Similar to government-backed loans, these can be applied to home purchase or renovation projects.
Home Renovation & Rehab Loans
First-time home buyers researching a fixer-upper or rehab property can also benefit from renovation loans, such as those offered through the FHA, Fannie Mae, and Freddie Mac.
Learn more about the following renovation loans offered through Contour Mortgage:
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 under $35,000.
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.
These fixed or ARM options include repair contingencies, which can be combined with other Fannie Mae products.
Freddie Mac Renovation Mortgages
Appropriate for 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 emergencies 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.
With many available options for first-time home buyers, contact a Contour Mortgage representative for professional guidance on requirements and processes.