Best Mortgage Lenders for First-Time Homebuyers

·12 min read

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When you’re a first-time homebuyer, you may have different needs than an experienced buyer. Knowing what those needs are can help you choose the best mortgage lender for your unique financial circumstances.

For example, you might have little (or no) money saved for a down payment, or you might need help with closing costs. Additionally, if you prefer a helping hand, you may need a lender with excellent customer service to guide you.

Whatever the situation may be, you should find a mortgage lender that matches your needs.

Let’s look at how to find the best mortgage lender if you’re a first-time homebuyer.

Where can I get a first-time homebuyer mortgage?

Many lenders offer mortgages geared toward making homeownership affordable for first-time buyers, including FHA, USDA, and VA loans. These types of loans are good if you’re buying your first home because they often require little to no down payment.

It’s important to note that each lender will have its own criteria for you to meet in addition to basic requirements. For example, you must live in a rural area to qualify for a USDA loan, and you must meet specific military service requirements to be eligible for a VA loan.

A USDA loan doesn’t require a down payment — it offers 100% financing to those who meet certain income and other requirements. By comparison, an FHA loan requires down payments as little as 3.5% and is insured by the Federal Housing Administration.

You can compare mortgage rates from multiple lenders using Credible.

Best mortgage lenders for first-time homebuyers

The following Credible partner lenders have loan offerings that may be good for first-time buyers.

Caliber Home Loans

Caliber Home Loans is a non-bank mortgage lender that connects you with a loan consultant in your area to provide you with a customized lending experience based on your needs. In 2019, it was ranked as one of the top 30 lenders by Inside Mortgage Finance.

  • Loan types: Conventional, FHA, FHA 203(k), Home PossibleⓇ, HomeReady, Homestyle RenovationⓇ, jumbo, USDA, VA

  • Loan terms: 15 and 30 years (fixed-rate); 3/1, 5/1 7/1, 10/1, and 5/5 (adjustable-rate)

  • Minimum credit score: 580 (fixed-rate and FHA loans)

  • Minimum down payment requirements: As low as 3% (based on your loan amount); no down payment requirement for VA loans

loanDepot

This mortgage lender lets you complete the homebuying process online. If you’re interested in closing on a home fast, this could be the perfect lender for you. Some buyers have closed on homes in as little as seven days, according to loanDepot’s website.

  • Loan types: Conventional, FHA, FHA 203(k), HARP, jumbo, VA

  • Terms: 10, 15, 20, and 30 years (fixed-rate loans); 3/1, 5/1, 7/1, and 10/1 (adjustable-rate loans)

  • Minimum credit score: 580 (FHA loans); 620 (conventional); no minimum (HARP and VA)

  • Minimum down payment requirements: 5% (conventional); 3.5% (FHA)

Rocket Mortgage

Rocket Mortgage by Quicken Loans has a tech-powered platform that lets you apply for a mortgage online or through its mobile app. Last year, it was ranked No. 1 for customer service by J.D. Power for the 11th straight year. If you have questions about applying, you can chat with one of its home experts seven days a week.

  • Loan types: Conventional, FHA, jumbo, VA

  • Terms: 15 and 30 years (fixed-rate)

  • Minimum credit score: 580

  • Minimum down payment requirements: As low as 3.5%, but it depends on the type of mortgage you choose

Stearns

Stearns is a retail and wholesale mortgage lender that offers a wide range of loan types for first-time homebuyers, including a fixer-upper loan if you’re interested in buying a house that needs a bit of renovation. In addition, the lender has a special loan program for lenders called Smart Start, where first-time homebuyers receive a lower monthly payment on fixed-rate loans during the first two years.

  • Loan types: Conventional, Doctor Loan, FHA, FHA 203(k), jumbo, USDA, Stearns Smart Start, VA

  • Terms: 10 to 30 years (conventional fixed-rate loans); 5/1, 7/1, and 10/1 (conventional adjustable-rate loans)

  • Minimum credit score: 580 (FHA loan)

  • Minimum down payment requirements: 3.5% (conventional loans)

Other lenders to consider

The following three lenders are not Credible partners, so you won’t be able to easily compare your rates with them on the Credible platform. But they may also be worth considering if you’re looking for a mortgage as a first-time homebuyer.

JMAC Lending

JMAC Lending is a wholesaler lender that offers large loans to investors and government-backed loans for those who need to borrow a smaller amount. If you choose an FHA loan with this lender, a friend or family member is allowed to contribute 100% of the closing and down payment costs.

  • Loan types: Conforming, FHA, jumbo, Non-QM, VA

  • Terms: 15 and 30 years (fixed-rate); 5/6, 7/6, and 10/6 (adjustable-rate)

  • Minimum credit score: 620 FICO score (FHA loan)

  • Minimum down payment requirements: 3.5% (FHA loan)

PNC

PNC offers closing-cost assistance in the form of a $1,500 grant to borrowers who meet certain income requirements. In addition, you can track your application process every step of the way with its Home Insight® tracker.

  • Loan types: Conventional, FHA, jumbo, VA

  • Terms: 10 to 30 years (conventional); 15 to 30 years (jumbo)

  • Minimum credit score: Not specified

  • Minimum down payment requirements: 3% for conventional loans; no down payment requirement for VA loans

Veterans United

Veterans United specializes in offering VA loans to military personnel and select family members who qualify. These loans come with no down payment or mortgage insurance requirements. Consumer Advocate ranks this lender No. 1 for VA loans.

  • Loan types: VA loans and VA jumbo loans

  • Terms: 15 and 30 years (fixed-rate)

  • Minimum credit score: Not specified

  • Minimum down payment requirements: No down payment requirement

Methodology

To come up with a list of mortgage lenders, Credible considered factors that may be of interest to first-time homebuyers, such as the type of loans offered, minimum credit score requirements, loan terms, and how easy it is to communicate with the lender (phone, customer service chat, mobile app, etc.).

Compare mortgage rates from these and other lenders using Credible.

What’s the best type of mortgage for a first-time buyer?

Since homebuyers are as diverse as the houses they’re buying, the best type of mortgage for a first-time buyer depends on your unique needs. Fortunately, you have plenty of loan options available, including conventional loans, FHA loans, USDA loans, and VA loans.

Conventional loan

A conventional mortgage loan is one that’s not backed by a government program, like Fannie Mae or Freddie Mac.

  • How it works: A conventional loan is similar to a government-backed mortgage loan, but a lender that offers this type of loan may require you to have a higher credit score or down payment.

  • Who’s eligible: To be eligible for a conventional loan, you must qualify for one based on the factors lenders typically review, such as credit score, income, and debt-to-income ratio.

  • Minimum credit score: 620

  • May be best for: Conventional loans work best for homebuyers who can afford higher down payment amounts and have good to excellent credit scores (at least 670).

FHA loan

  • How it works: When you take out an FHA loan, your mortgage is insured by the Federal Housing Administration. Since the loan is insured by this government program, it’s less risky for lenders. This benefits you in the form of lower credit score and down payment requirements.

  • Who’s eligible: To qualify for an FHA loan, you must put at least 3.5% down and the home you buy must be your primary residence. If your FICO score is between 500 and 579, your required down payment amount will be 10%.

  • Minimum credit score: 500

  • May be best for: FHA loans work best for people who prefer a lower down payment amount or who want to qualify for a mortgage loan but have a lower credit score

USDA loan

The United States Department of Agriculture (USDA) Rural Development Single Family Housing Guaranteed Loan Program is designed to help low- to moderate-income borrowers purchase homes in rural areas.

  • How it works: This loan program guarantees 90% of mortgages for select lenders. Because of this, borrowers who qualify can get a house with no money down and competitive rates. It has no credit score requirements, but buyers must show that they’re capable of managing the mortgage loan.

  • Who’s eligible: Borrowers who meet certain income requirements. To see if you qualify, view the income limits in your state.

  • Minimum credit score: No minimum score required

  • May be best for: USDA loans might work best for you if you have low to moderate income and want to purchase a home in a rural area.

VA loan

A VA loan is designed to help a military member or their family members buy a home.

  • How it works: This type of loan is guaranteed by the Department of Veterans Affairs. Military members who qualify don’t have to put any money down and typically get more competitive interest rates. To support this program, the homebuyer pays a one-time fee up front.

  • Who’s eligible: Military members who qualify for a certificate of eligibility (COE) based on their years of service and their surviving spouses

  • Minimum credit score: 620

  • May be best for: Service members who prefer to take out a mortgage that has little to no down payment or private mortgage insurance (PMI) requirements

Fixed-rate vs. adjustable-rate mortgages

Which is better, a fixed-rate or adjustable-rate mortgage? That depends.

When you have a fixed-rate mortgage, your interest rate remains the same during the life of the loan. If you have an adjustable-rate mortgage, or ARM, the interest rate will remain the same for a specific time period, and then it will fluctuate based on a benchmark rate.

For example, if you have a 5/1 ARM, your interest rate will remain the same for five years. Once that period ends, your interest rate could go up or down.

If you plan on remaining in your first home for a long time, it’s usually better to choose a fixed-rate mortgage. But if you plan on moving again before the period when the interest rate adjusts, it may be worth considering an adjustable-rate mortgage, as this type of mortgage typically comes with a lower interest rate initially.

How much will a first-time homebuyer mortgage cost?

Since first-time homebuyers have different incomes and needs, the costs of their mortgages vary. How much your mortgage costs will depend largely on the home prices in your area, how much of a loan you get approved for, and your budget. It also depends on the interest rate you qualify for. If you get a lower interest rate, your monthly mortgage payment may be lower, depending on the loan term you choose.

The cost of your mortgage as a first-time buyer will also depend on other factors, including your down payment amount, closing costs (if any), and fees. For example, if you can afford a higher down payment amount, this could lower your monthly payment and the amount of interest you pay over the life of the loan.

To make sure you don’t spend too much on your first mortgage, review your budget to see what you can comfortably afford. Although you may be approved for a larger amount, it’s wise to stick to your budget.

Private mortgage insurance (PMI)

If your down payment is less than 20%, you might have to pay PMI if you take out a conventional mortgage loan — this insurance protects the mortgage lender if you stop making payments. This insurance would increase your monthly mortgage payments.

Besides conventional loans, other types of mortgage loans require mortgage insurance, but it may be called something different. For example, an FHA loan usually requires that you pay a mortgage insurance premium as an up-front fee if your down payment is less than 20%.

What credit score do I need to get a mortgage?

The minimum credit score you need to get a mortgage varies according to the lender. In general, you need at least a credit score of 580 to qualify for a mortgage loan. The higher your score is, the more likely you’ll qualify for the best rates.

People who have good FICO scores (670 or above) typically have a better chance of securing the best interest rates. If your credit score is fair (580 to 669), a lender may approve you, but usually at a higher rate. Unfortunately, if your credit score is below 580, it’s considered poor and you’ll likely have trouble qualifying for a mortgage loan.

How can I apply for a first mortgage?

To apply for your first mortgage, follow these four steps.

  • Get prequalified. When you prequalify for a mortgage, you’ll get an estimate of how much you could qualify for based on the information you provide the mortgage lender.

  • Get pre-approved. Pre-approval is a step above prequalifying because the mortgage lender actually pulls your credit to verify the information you’ve provided, such as your income and employment status.

  • Compare multiple lenders. Before you apply, compare the rates, terms, and fees of multiple lenders to find the best loan option available.

  • Find an experienced real estate agent. An experienced agent can guide you through the homebuying process and negotiate on your behalf to get you the best deal.

Credible makes it easy to compare multiple lenders if you’re shopping for a mortgage.

What should I know about first-time homebuyer assistance?

If you don’t have money for a down payment or need help with closing costs, don’t get discouraged. Search for first-time homebuyer programs in your area if you need help. Some loan programs offer grants or forgivable loans to help you with your down payment, closing costs, or both.

Additionally, look into a government-backed loan — these loans usually come with lower down payment requirements and more flexible terms since they’re guaranteed by the government in the event you default.

About the author: Jerry Brown is a personal finance writer, owner of the Peerless Money Mentor blog, and a contributor to Credible. He has written for major publications such as Forbes Advisor, Business Insider, and Rocket Mortgage.

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