5 Great Loan Options for First-Time Home Buyers
If you’re entering the real estate market for your first home, congratulations! You’re one step closer to becoming a property owner, and that means you can build long-term equity and wealth for years to come!
But if you’re just starting, you may also feel a little intimidated. Houses are expensive, and they often require taking out significant loans before you can move in.
Fortunately, there are a variety of excellent loan options for first-time home buyers available in the market today! From products designed for individuals with low incomes to products offering low down payments, you’re bound to find something right for you.
Let’s take a closer look!
5 Loan Options First-Time Home Buyers Can Use
Here are five great mortgage options designed to help first-time home buyers get into great homes:
1. FHA Loans
FHA loans have been around since 1934 and are backed by the Federal Housing Administration (FHA). With their low down payment requirements and loose credit score thresholds, this can be an excellent option for individuals with low cash reserves or who simply need a little extra help—or individuals who are buying a home for the first time and don’t have any equity to leverage.
Down Payment Requirement: 3.5%
Credit Score Requirement: 580+
Mortgage Insurance Required: Yes
2. VA Home Loans
VA home loans are extremely attractive options for qualified first-time home buyers as they don’t require a down payment or mortgage insurance.
Who Qualifies: Active-Duty Service Members, Veterans, Surviving Spouses of Veterans, Members of the National Guard, Reservists
Down Payment Requirement: None
Credit Score Requirement: The VA doesn’t specify credit score requirements for qualified borrowers, so this number varies from lender to lender. In general, aiming for 620 is wise, but lenders may have minimums above or below that.
Mortgage Insurance Required: No
3. USDA Home Loan
USDA loans are intended for buyers with low or moderate income levels. While that can make them attractive options, there is one caveat: They’re only available for homes in eligible rural areas that have been designated by the USDA.
Around Pittsburgh, that means areas like Monaca, McDonald, Saxonburg, and Leechburg are often available for USDA loans, but not regions like Penn Hills, Carnegie, Bethel Park, or Irwin.
Down Payment Requirement: None
Credit Score Requirement: The USDA doesn’t specify credit score requirements for qualified borrowers, so this number varies from lender to lender. In general, aiming for 640 on a USDA loan is wise, but lenders may have minimums above or below that.
Mortgage Insurance Required: Yes
4. Conventional Loans - Various
Conventional loans come in a few different options, all of which provide unique benefits for specific first-time home buyers. Here are two of the most common:
Conforming Loans
This is the most popular option among conventional loans, and they’re a strong option for individuals with good credit scores and strong debt-to-income ratios.
Down Payment Requirement: 3% or higher
Credit Score Requirement: 620+
Mortgage Insurance Required: Yes—for down payments under 20%.
Jumbo Loans
Jumbo loans are similar to conforming loans, but they present greater risk to the lender and are intended for purchases of more expensive property. Currently, jumbo loans are for properties that cost more than $647,200.
Down Payment Requirement: Often 10% or more
Credit Score: Often 700+
Mortgage Insurance Required: Yes—for down payments under 20%.
5. Good Neighbor Next Door Program
Good Neighbor Next Door (GNND) loans are set up by the US Department of Housing and Urban Development and are intended to attract specific types of working professionals to community revitalization efforts by offering 50% off the list price of a home—as long as the eligible buyer commits to living there for 36 months.
Who Qualifies: Law enforcement officers, teachers, firefighters, emergency medical technicians
Down Payment Requirement: $100
Credit Score Requirement: 580+ (through 500+ is acceptable)
Mortgage Insurance Required: Yes
Other Financial Resouces and Breaks for First-Time Home Buyers
If you need a little extra help paying for your first home, don’t forget about these resources:
1. Local Programs for First-Time Home Buyers
Your state, county, or even city may have its own program to assist first-time home buyers. For example, Allegheny County periodically holds a program for first-time home buyers. Check with your local authorities to see if there are programs available to you!
2. Federal Tax Credits and Breaks
The First-Time Homebuyer Act of 2021 allows qualifying first-time home buyers up to $15,000 in refundable federal tax credits! That’s a huge benefit for new homeowners, but it’s not the only tax benefit Uncle Sam allows. Your mortgage interest payments, property taxes, and other real estate-related taxes can be written off at the end of the year.
3. IRA Help
First-time home buyers can pull up to $10,000 from their ROTH IRA or Traditional IRA to support buying a home. Take note, however, that you’ll still be responsible for paying taxes on that withdrawal!
Get Personalized Assistance As A First-Time Home Buyer
At New Local Realty, we frequently help first-time home buyers access excellent, affordable homes! Contact us to learn how we can work together.
