First-time home buyers tend to have a lot of questions about the mortgage approval process. One of the most common questions we get from our readers is: What are the steps in qualifying for a home loan as a first-time buyer? And what are the minimum qualification requirements for getting a first mortgage loan? Here’s what you need to know.
Mortgage lenders look at a variety of factors when considering loan applications. Income, credit scores, debt ratios, and down payment funds are some of the most important factors for first-time buyers qualifying for a home loan. So let’s talk about each one.
Credit scores are three-digit numbers that basically show how you have borrowed and repaid money in the past. They are computed automatically by sophisticated algorithms that use information found within a person’s credit reports. The FIFO credit scoring model is the one most commonly used by mortgage lenders. So it’s generally the one that matters most, when it comes to qualifying for a home loan as a first-time buyer.
Minimum credit-score requirements can vary from one mortgage program to the next. The FHA loan program is one of the most lenient, in terms of credit standards. First-time home buyers who use an FHA loan must have a credit score of at least 580, if they wish to use the 3.5% down payment option.
Conventional home loans (which are not insured or guaranteed by the government) typically have higher credit score requirements. To qualify for a conventional loan, first-time home buyers might need a credit score of 600 or higher. That number is not necessarily written in stone, but it does signify a common cutoff point used by mortgage lenders. Some set the bar even higher at around 620. Read more about How to Qualify for a Home Loan as a First-Time Buyer …