subject: Getting A Mortgage As A First-time Buyer [print this page] Being a first-time homebuyer used to present numerous mortgage and property loan options. Borrowers could acquire finance with less than perfect credit and mortgage lenders would certainly offer first-timers zero down home mortgages. A shift in the mortgage sector has created obstacles for first-time homebuyers. These individuals can still obtain home loans, but satisfying a lender's prerequisites requires advance preparation and an A + credit history
Minimum Credit Score
Before the housing crisis, first-time homebuyers could qualify for mortgages with scores in the 500 range. People with scores in this range generally have credit problems, but many lenders took a chance with these buyers and offered financing in exchange for a higher mortgage rate. Fast forward a few short years and the mortgage scene has changed dramatically. As of 2012, first-time homebuyers now need a 680 credit score minimum for a conventional mortgage loan, and a 740+ credit score to obtain the best mortgage rate. First-timers with lower scores can obtain financing through The Federal Housing Administration, but this requires meeting the agency's specific guidelines.
Mortgage Down Payment
Down payments create a second hurdle for many first-time homebuyers. Putting down 20 percent on a house was commonplace many years ago. As home prices increased, lenders gradually relaxed their down payment guidelines and eventually required no money down on mortgages. This allowed many people to enter the world of ownership without any cash on-hand. Like low credit scores, this is no longer the norm in the mortgage industry with many lenders reverting back to the 20 percent down payment requirement. Seasoned property owners with plenty of equity in their existing homes can generally meet a lender's down payment requirement. The opposite is true with first-time homebuyers -- especially since the average home price in some cities is well over $200,000. This would require first-time buyers saving at least $40,000.
To help first-timers qualify for financing, some lenders require smaller down payments -- between 5 and 10 percent of the purchase price. While this amount is a lot less than 20 percent, it's still a sizable amount and it can take first-timers years to save this kind of money.
Housing Ratio
Salaries in most cities don't always keep up with the cost of living. This forces many people (including first-time buyers) to take out mortgages with payments around 50 percent of their gross monthly income. The majority of lenders have stopped offering these types of mortgages and now cap the housing ratio at 30 percent. In other words, first-time buyers and seasoned buyers cannot qualify for mortgages if the house payment exceeds 30 percent of their gross monthly income. This rule forces many first-timers to select cheaper homes or delay purchasing until their income improves.
by: Timothy Capper
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