First Time Home Buyer Loans

Do you feel ready to buy your first home but confused about the loan process? Learn your loan options and how to apply.

Buying your first home is an exciting process, but it is also intimidating. You have to make sure you feel emotionally ready for the commitment and responsibilities involved. Making sure you can handle the financial obligations of home ownership is also vital. As a first time home buyer, you probably need financial assistance to purchase the home you want.

There are many different types of loans available to you when you are buying your first home. You need to explore each of those loan options to find the one you like the best. Each option comes with different repayment time lines, interest rates, and other features. Once you settle on a particular type of loan, you also need to prepare for the application and approval process. Understanding the qualification requirements and application process can help you avoid unnecessary confusion and delays. Here is a brief explanation of how the entire first time home buyer loan application process works.


Types of Loans for First Time Home Buyers

The first step in the home loan application process is exploring the types of loans for which you may qualify. Once you identify those loans, you you need to examine the details of each to see which one you feel has the best features. Popular types of home loans for which you may qualify include:

  • Federal Housing Administration (FHA) Loans – FHAs are insured by the federal government. Since they are government-insured, they typically have lower requirements and risks than other home loans. You can potentially still qualify for an FHA loan, even if you have poor credit.

  • Conventional Loans – Conventional loans are loans not provided through government sources. You can typically obtain them from private lending institutions like local banks. Fannie Mae and Freddy Mac are also popular conventional loan sources. Conventional loans are usually harder to qualify for than government loans. However, getting one means you may may pay less than you must pay when borrowing through an FHA or other government loan source.

  • State First Time Home Buyer Programs – There are programs specifically for first time home buyers in every U.S. state. Some states offer multiple first time home buyer loan options. Check with your state's housing authorities to find first time home buyer programs for which you may qualify.

  • U.S. Department of Veterans Affairs (VA) Loans – If you are an active military member or a retired veteran, you may qualify for a home loan through the VA. VA loans do not require down payments, and other fees are also lower than those associated with conventional loans.

  • Other Specialty Loan Programs – You may qualify for other specialty loan programs. For example, there are rural housing loans available to you, if you are purchasing a home in a rural area. Housing loans for Native Americans and other specific groups are also available.

Basic Requirements to Get a Home Loan

There are several basic requirements to get a home loan. The first is a sufficient credit score. However, the exact minimum score you need depends on the type of loan for which you are applying. FHA loans usually have the lowest credit score requirements, at around 500 minimum. Conventional loans usually require applicants to have credit scores of 620 or higher. 

To get a home loan, you must also typically prove you are financially stable enough to make your loan payments. You may need to present proof of stead employment and income level. Your lender may also examine any existing debts you have, such as your credit card balances. Information a lender may ask you to produce as proof of financial stability include:

  • Valid Identification Card or Driver's License

  • Credit Card and Bank Statements

  • Letter of Employment Verification from Your Employer

  • Pay Stubs or Tax Documents

  • Other Income Documents (If Self-Employed)

How to Apply for a Home Loan

As soon as you are ready to shop for a loan, you need to start the application process. Do not start shopping around for a home until you speak to your chosen lender. That way you can get pre-approved to borrow a specific amount. Then you can look at homes you know are within your buying budget. When you visit your lender, make sure you have the required identification and proof of income documents.

Help with the Loan Application Process

Filling out a home loan application is sometimes confusing. If you have questions, make sure you ask your lender before you sign any contracts. Most companies offering home loans also offer assistance with the application process. Some also offer handy website features or phone apps to help walk you through the loan application process.

Home Loan Approval Process Steps

After you apply for a home loan, all you have to do is wait. That wait may be a long one, since several steps are involved in the approval process. First, the lender performs a title search to make sure you hold no other relevant properties or assets. Then your credit reports are run. The lender must also review any tax documents you have supplied. 

The lender must also review all information on your application for accuracy. That includes any financial information you have listed. During the verification process, the lender may call your bank. You credit history is also reviewed carefully by the lender. If the lender has any questions, you must respond to them promptly in writing. You may also need to provide additional supportive documentation verifying the information you put on your application. 

After the lender approves of your loan application it must go through an underwriter. The underwriter is responsible for double checking the application. He or she is trained to find minute details and verify them. You may have to answer more questions during that process.

Closing day occurs after you receive approval from the underwriter. On closing day, you must review all paperwork and sign all necessary documents. Then you can receive the keys to your new home. Make sure you carefully read all documents before signing them, since they are legally binding contracts.

Banks That Offer Home Loans

Many banks offer home loans for all home buyers, including first time buyers. Every bank offers different loan interest rates and features. For example, in 2021 Chase is currently offering a three percent down payment on home loans, while Bank of America requires you to pay five percent. However, interest and down payment rates change frequently. Check local banks, national banking chains, and government programs to determine which source has the current best rates when you search for a new home.