Being a first time home buyer has its perks

As a first-time home buyer, you’ll have access to special mortgage programs with low down payments and flexible guidelines.

You might even be in line for a grant to help with your down payment and closing costs.

But that all depends on what you qualify for.

Your eligibility for first time home buyer grants and loans depends on your credit score, income, down payment, and debts.

So do your research before buying to make sure you’re not missing out on first time home buyer programs that could save you money.

In this article (Skip to…)

• How to qualify for first time home buyer loans
• How to qualify for first time home buyer grants
• Who is considered a first time home buyer?
• Advice for first time home buyers in today’s market
• Find out if you’re eligible as a first time buyer

Or you might qualify for a Fannie Mae loan with a debt-to-income ratio as high as 50%, instead of 43%. But you’ll need other compensating factors (like a bigger savings account) to qualify.

So explore your loan options. Even if you have special circumstances, it’s likely easier to qualify as a first time home buyer than you think.

“Every state in the country has a housing finance agency, and all offer special programs for first-time buyers,” says Anna DeSimone, author of Housing Finance 2020.

She continues, “Nearly every one of these agencies also has a down payment assistance program. These programs commonly offer grants to help fund your down payment—money that may not have to be repaid.

“Or, assistance can be in the form of a loan–the payments of which can be deferred until the house is sold or the mortgage is refinanced.”

>> Related: Down Payment Assistance programs in every state for 2020

DeSimone notes that agencies typically offer grants that equate to 4% of the home’s purchase price. “And many programs also provide additional assistance to cover closing costs.”

Of course, whether or not you qualify for a first time home buyer grant will depend on what’s available in your area.

Angel Merritt, mortgage manager with Zeal Credit Union, explains that each of these programs has different qualification requirements.

“Typically, you’d need a 640 minimum credit score. And income limits may be based on family size and property location,” says Merritt.

She notes that, in her state, a popular program is the Michigan State Housing Development Authority grant, which awards up to $7,500 in down payment assistance.

“Under most programs, a first-time home buyer is a person who has not had any ownership ,” says Ryan Leahy, Sales Manager at Mortgage Network, Inc.

That’s especially good news for “boomerang buyers” who owned a home in the past but went through a short sale, foreclosure, or bankruptcy.

Under the three-year rule, these people have an easier road back to homeownership through first time home buyer grants and loans.

Suzanne Hollander is a real estate attorney and Florida International University senior instructor. She says, in general, first-time buyers also need to verify at least two years of income and current employment.

“What’s more, many lenders have been rapidly increasing the minimum credit score needed to qualify for many loans lately due to COVID-19 concerns,” says Hollander.

“This is happening because the initial lender sells a pool of FHA loans to investors on the secondary market. Investors buy these for an income stream, and they’re not interested in taking the risk on loans with lower credit scores during this time.”

Randall Yates, CEO of The Lenders Network, agrees.

“Some lenders who previously accepted a 580 credit score for an FHA loan have increased that minimum to 620 to 660,” notes Yates.

“If you have any credit issues, I’d recommend using all the extra time we have during this shutdown to get your credit in order.”

To improve your credit score, Hollander recommends these tips:

• Call your credit card company and request an increase in your credit line
• Keep your balance below 30% of your allowed credit limit
• If you can’t pay a bill on time, call your credit card company and ask for a deferral of payments without a negative report to your credit agency

>> Related: Complete guide to building good credit

And remember — first time home buyer or not, you might find lenders willing to offer some flexibility with their guidelines.

So especially if you’re right on the edge of qualifying for a mortgage, make sure you shop around and ask plenty of questions before settling on a loan.

When applying for a home loan, don’t be afraid to ask questions about the qualification requirements, suggests Merritt.

“If your loan professional isn’t willing to explain everything, find another lender,” Merritt recommends.