First Time Home Buyer Loans

Did you know that only about 10% of buyers purchase homes with all cash?

Most people need to borrow at least some of the money to buy a new home. This happens with a special type of loan called a mortgage. Some states refer to mortgages as deeds of trust.

The average down payment for first time home buyers is only 6%. On a $250,000 home purchase, that would be just $15,000. Some loan programs will even let you buy with even less than 6% down.

This covers how much you may need, but how much should you put down? It depends on your income, how much you currently have saved, how expensive the home is, and what your home buying goals are.

Generally speaking, here are the pros and cons of bigger versus smaller down payments:

Bigger down payment = lower interest rate
Bigger down payment = lower monthly payment
Smaller down payment = stop paying rent, buy a home sooner
Smaller down payment = start building equity faster

If you need specific guidance, we’re here to help!

If average down payments are well under 20%, why do some people say this is the minimum? That’s because 20% down gets you out of paying for something called “mortgage insurance.”

Mortgage insurance is an extra charge on your monthly mortgage bill, and this can sometimes be expensive. It can sometimes go over $100 per month. However, there are also benefits to paying mortgage insurance if it gets you in a home sooner. It’s another cost versus benefit item to consider as you put together your home buying budget.

Many mortgage programs require a down payment of some kind. On paper, this is money you put toward the home purchase out of your own pocket. But there are ways to avoid that and still come up with the cash required to get a loan.

As you might expect, this is an important question to answer early on! It’s so important that we have a separate How Much Can You Afford guide, plus a Home Affordability Calculator. Check out these resources!

Your credit score makes a big difference when you buy a house. It affects your loan options, mortgage, rate, and home buying budget. This can sometimes be a concern for first time home buyers who might not have “excellent” credit. But those with fair to good credit scores still have options.

Here are the typical credit score requirements for the most popular first time home buyer programs:

Conventional loan — 620+
FHA loan — 580+
VA loan — 620+
USDA loan — 640+

It becomes more difficult to find mortgage financing in the below-620 range. Technically FHA loans are available with a credit score as low as 500, but only if you can make at least a 10% down payment.

Start checking your credit well before you plan to buy a house — at least a year in advance if possible. This will give you time to flag errors on your report, solve them, and even work on raising your score if that’s necessary to get a loan.

If you want to know whether you’re ready to buy a house, ask yourself four questions: 1) Do I have a steady job and reliable income?; 2) Do I have enough money saved for the down payment AND closing costs?; 3) Is my credit history reasonably strong?; 4) Do I plan to stay in the home for at least five years? There’s a lot more to each of these questions, of course, but the answers should give you a general feel for your home buying readiness.

No matter where you are in the home buying process, having a mortgage broker like National Home Loans in your corner can save you time, money, and energy. We can get the right mortgage for a first-time home buyer like yourself at the best rate possible. Request rates or contact us to see how we can help!