As a first-time homebuyer, what's required of you when purchasing a home?
If you're like most first-time homebuyers, you pretty much have three mortgage loan options to choose from: VA, FHA, and conventional. If you're not a veteran or currently in the military, a VA loan doesn't apply to you. As for FHA and conventional loans, there are three requirements that come with qualifying for these.
The first is your credit, and the difference with this factor between an FHA and a conventional loan is huge. With an FHA loan, you can qualify with a score as low as 580. With a conventional loan, it can depend on which program you choose and what payment you come in with. Even if your credit is not where it needs to be in order to purchase a home, that can be fixed. We have credit repair companies we partner with who we can refer you to, and we can also give you in-house credit counseling.
The second requirement is the down payment. As with your credit, there's a huge difference between an FHA loan and a conventional loan in terms of what you have to put down. With an FHA loan, you can go as low as no money down. There are plenty of down payment assistance programs out there, but you have to determine whether that's something that's conducive to your situation.
The FHA program for first-time homebuyers only requires you to put down 3.5% of the purchase price, which translates into $3,500 for every $100,000. Keep in mind, you can tap into your 401(k), IRA, or retirement plan to pay for that down payment - it doesn't have to be paid for with money you currently have in your bank account.
With a conventional loan, you can go anywhere from 3% down to 30% down. Many people assume that conventional loans require you to put down 20%, but that's not true. However, if you don't put at least 20% down, you'll have to pay private mortgage insurance (or PMI).
The third and final requirement is your income. When it comes to this factor, you need to be employed within the same industry over at least the last two years. This doesn't mean you have to be with the same employer, though. This comes into play once we start talking about your debt-to-income ratio (DTI). Again, there's a big difference here between a conventional loan and an FHA loan, and you need to know your DTI to determine which route to take.
The situation is slightly different if you're self-employed. If you have a lot of compensating factors, we can potentially take only one year's worth of taxes. There are several loan programs for self-employed individuals that don't require two years' worth of taxes. Your loan can also be done with only bank statements, and that's important because it means you don't have to declare huge amounts to be able to qualify, and you only need one month's worth of bank statements to determine where your income is.
If you meet these three requirements, there's no reason you shouldn't get approved for a loan.
If you have any other questions about this topic or you're thinking about buying a house, don't hesitate to reach out to me. I'd be happy to help you.