First Time Home Buyer Loans: How to Improve Your Chances

Applying for a home loan can be a pretty intimidating process. For most people, it’s the largest amount of money they will ever borrow. Applying for a home loan is even scarier if it’s your very first home and you’ve never gone through the process before.


This guide to loans for first time home buyers will help you figure out what lenders look at when you apply and how you can improve your chances of qualifying for a great rate. Don’t worry, it’s one of the top common worries for home buyers.

The first time home buyer loan application

Before you look at houses, get pre-approved for your home loan. This is how you’ll know if you will qualify for a mortgage and for how much. This is a smart move for any buyer. You won’t want to spend time finding a great house only to realize you cannot qualify for the appropriate home loan.

When you apply with a bank or other mortgage lender, the fact that it’s your first mortgage isn’t necessarily an obstacle. The lender is more concerned with the overall strength of your application. They will look at your total income, your credit score, your expected down payment, your other financial assets, and your outstanding debts.

For your other debts, the actual dollar amount of the balances is not as important as how much of your monthly income goes towards paying debt. This is known as your debt-to-income ratio. To qualify, no more than about 36% of your pre-tax income should go towards debt payments, including the future home loan payments. This is good news if you have some other large outstanding debts like student loans because you can still qualify even if you aren’t debt-free. If you have credit card debt, it’s the minimum monthly payment that’s factored into the ratio.

How to get a first time home buyers loan

First-time homebuyers maybe be at a slight disadvantage compared with repeat homebuyers because having a mortgage on your credit report can improve your score. A mortgage can lend points to your payment history, credit mix and file age. First-timers can make up for the lack of mortgage data with revolving debt, auto loans, personal loans and so on.

Before you apply for your first mortgage, work to get your credit score as high as possible. One way to do this is to pay off as much of your credit card debt as possible. The lower your outstanding credit card debt is compared to your total credit limit, the better for your score. You should also avoid applying for other loans and credit products for at least six to twelve months before you apply for a mortgage, and definitely while your final closing is pending. Every new application leads to a credit inquiry which can lower your score. Finally, make all of your other monthly payments on time. A recent missed payment could torpedo your mortgage application.

When you shop for your mortgage, you can safely inquire with multiple lenders without hurting your score. First, mortgage inquiries don’t hurt your score at all for the first 30 days. Then, all mortgage inquiries within 45 days are treated as a single inquiry.

To qualify for first time buyer home loans, your score should be at least 620. To qualify for the best rates, you need a score of 720 to 740, depending on the lender. You can estimate your score every month using your free Credit Sesame account.

You can help your chances of approval by saving a larger down payment. A higher down payment means a smaller loan, so the bar to qualify will be lower. Also, if you can pay off any existing debt, do. That will improve your debt-to-income ratio and show lenders that you have a history of honoring your debts.

First time home buyer loans with bad credit

If your credit score has some problems you can still qualify for a mortgage, even as a first time buyer. A good way to improve your chances is by making a larger down payment.

Many lenders specialize in making bad credit home loans. With a bad credit score, you should expect to pay a higher interest rate on your loan if you qualify. This means you will pay more per month for borrowing money. However, the higher payments don’t have to be forever. If you make all your future mortgage payments on-time, it should boost your score. After as little as six to twelve months, you could refinance to a mortgage with better terms. That means exchanging your existing loan for one that comes with a lower interest rate and lower monthly payments.

Many consumers with average or poor credit obtain their mortgage through the FHA loan program. In an FHA loan, the government guarantees the loan against default, so the lender has more latitude in approving the loan for a consumer who might not otherwise qualify. Under this program, you could qualify for a mortgage with a score as low as 500. The downside is that many extra fees and costs are associated with this type of loan.

First time home buyer loans with zero down

These days it’s not easy to qualify for a home loan with zero money down. These loans contributed significantly to the recent housing market crash. As a result, lenders tightened up the requirements for a first time home buyers loan and most now require at least some down payment.

Government programs are the main way to get no money down home loans. The VA offers no money down mortgage loans for service members, veterans, and their surviving spouses. If you live in a rural area, you can also apply for zero money down loan through the USDA Rural Development program.

Be careful, though. Zero down loans can backfire and end up costing you quite a bundle if you need to sell the property before you’ve built up sufficient equity.

Outside of these programs, it’s very hard to get a true zero money down loan, but you can get close. With the FHA program, the down payment requirement is as low as 3.5%. Some private lenders allow a down payment as low as 3%, provided the rest of your application is very strong.

Note that any time you have a down payment of less than 20%, you will be required to buy private mortgage insurance, which protects the lender in case you do not pay back your loan. You’ll pay monthly premiums for this insurance until you have paid off at least 20% of your property. On FHA loans, some premiums are paid for the entire life of the loan.

Qualifying for your first time home loan takes some work and planning but it is definitely possible. Do your research, look for tips to make home buying easier. Between this advice and the tools on Credit Sesame, you will be well prepared to buy your first home. Good luck.

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