Ways to Get Best Mortgage for First Time Homebuyers

By Alyssa Martinez @ItsMariaAlyssa

It can be challenging for first-time homebuyers to decide on the right mortgage suitable for their credit score. There are a lot of factors that they need to consider while going for a mortgage. If you are eligible as a first-time homebuyer, you need to go through all the requirements needed for getting a reliable mortgage with low interest rates. Also, you will only qualify as a first-time home buyer if you haven't owned a home in the past three years. If you already own a home, but you do not live there for any reason, you will not be considered a first-time homebuyer. Anyways, there are a lot of things to know to get a mortgage, even if you have a low credit score. Get the best mortgage for first-time homebuyers by reading the factors below.

Lenders usually consider the following factors when deciding whether you are eligible for a mortgage.

  1. The credit score of the applicant.
  2. The size of your down payment.
  3. Your debt to income ratio, which means the loan amount compared to your income.
  4. Employment history.

If two to three factors among these considerations are positive, they may overweigh the remaining negative ones. Read below to know how you can improve each of these factors and boost your chances of getting loan approval.

Credit Score

The credit score of the loan application can determine what kinds of loans they are eligible for. Credit scores also determine the interest rate that can be offered to the applicant. Individuals with excellent credit scores get the best first-time home buyer mortgage rates. It can also have an impact on the down payment you make. Higher the credit scores, lower the down payments you will be eligible to pay.

Though you may be eligible for a home loan even if your credit score is 500, you would need to make a down payment of 10%. Also, this credit score may not get you an impressive interest rate.

Improving your credit score may take some time, but a good credit score can help you get a better mortgage.

Debt to income ratio

The debt to income ratio is calculated by dividing your monthly debt obligations by your monthly pretax income.

The best mortgage for first-time homebuyers looks for DT lower than 36%. If your lender is offering a mortgage with DTI higher than this value, they will more likely charge a higher interest rate.

To lower the DTI, try to pay existing debts. It is even more preferable not to go for any loans while preparing to get a house.

Employment history

Before you begin to apply for mortgages, make sure that your employment status is stable. You would not be able to change the employment history once it has been affected. Changing jobs during the underwriting process can negatively impact your lender's willingness to approve your loan.

Down payment

The amount of down payment you will need to pay will depend on the mortgage you are applying for. The military-affiliated individuals can qualify for VA loans, which allows zero down payment. If you live outside of urban areas with lower income, you can also be eligible for USDA loans to enable zero down payment.

FHA loans can allow applicants with lower credit scores to pay down payments as low as 3.5 %.

If you are able to have a great result in all of these factors, you may get the best mortgage for first-time home buyers . Take a step towards enhancing all these factors when you are planning to buy a new home.