Most conventional mortgages require a credit score of 620 or greater; however, Federal Housing Administration (FHA) loans can accept a credit score as low as 500 with a 10% down payment, or as low as 580 with a 3.5% down payment.
What Is the Average Interest Rate for a First-Time Homebuyer?
Interest rates depend on a variety of factors, including credit scores, down payment percentage, type of loan, and market conditions. There is no data to indicate that first-time homebuyers with similar creditworthiness and circumstances pay higher or lower interest rates than experienced homebuyers.
Are There Any State Tax Credits for First-Time Homebuyers?
While the first-time homebuyer tax credit was eliminated at the federal level in 2010, several states still offer state tax credits for first-time homebuyers. Additionally, some municipalities and counties offer property tax reductions for first-time homebuyers in their first year. Check with a local tax professional to see what you may be eligible for in your area.
The Bottom Line
If you’re looking for a home mortgage for the first time, you may find it difficult to sort through all the financing options. Take time to decide how much home you can actually afford and then finance accordingly. If you can afford to put down a substantial amount or have enough income to create a low LTV, then you will have more negotiating power with lenders and the most financing options. If you push for the largest loan, then you may be offered a higher risk-adjusted rate and private mortgage insurance. Weigh the benefit of obtaining a larger loan with the risk. Interest rates typically float during the interest-only period and will often adjust in reaction to changes in market interest rates. Also, consider the risk that your disposable income won’t rise along with the possible increase in borrowing costs. A good mortgage broker or mortgage banker should be able to help steer you through all the different programs and options, but nothing will serve you better than knowing your priorities for a mortgage loan.
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What Is a Mortgage Broker?
A mortgage broker is an intermediary who brings mortgage borrowers and mortgage lenders together, but who does not use their own funds to originate mortgages. A mortgage broker helps borrowers connect with lenders and seeks out the best lender for the borrower’s financial situation and interest-rate needs. They do the legwork so a borrower doesn’t have to. The mortgage broker also gathers paperwork from the borrower and passes it along to a mortgage lender for underwriting and approval purposes. The broker earns a commission from either the borrower, the lender, or both at closing.
Mortgage Brokers vs. Loan Officers
When consumers wish to buy or refinance a home, often their first step is to contact a loan officer in a local bank or credit union. A bank loan officer offers programs and mortgage rates from a single institution. By contrast, a mortgage broker works on a borrower’s behalf to find the lowest available mortgage rates and/or the best loan programs available through multiple lenders. However, the number of lenders a mortgage broker can access is limited by their approval to work with each lender. That means that borrowers are generally best served by doing some of their own legwork as well in order to find the best deal. A mortgage broker often works with several clients at one time and does not get paid unless a loan closes.
This encourages mortgage brokers to work with each borrower on a more personal level. If a loan originated through the efforts of a mortgage broker is declined, the broker applies to another lender. A loan officer from a big bank may keep a borrower waiting for an extended period of time because the officer is working with many borrowers at once. If a loan originating through a loan officer is declined, no further action is taken by the loan officer or bank. Some lenders work exclusively with mortgage brokers, providing borrowers access to loans that would otherwise not be available to them. In addition, mortgage brokers can get lenders to waive application, appraisal, origination, and other fees. Big banks work exclusively with loan officers and do not waive fees.
Can I Get a Home Loan Without a Mortgage Broker?
Yes, you can. However, finding a home loan isn’t easy and a mortgage broker can do the heavy lifting for you. Their essential purpose is to match borrowers with lenders.
Do Mortgage Brokers Have Conflicts of Interest?
Perhaps. Since mortgage brokers usually earn a commission when they bring lenders business, there’s room for a fundamental conflict of interest. Also, they could potentially steer borrowers to lenders that pay them better than others (lenders that may suit a borrower better). Loan officers who are paid salaries rather than commissions aren’t motivated in this way.
Why Would You Go to a Mortgage Broker?
Mortgage brokers may be a good fit for you when seeking out a mortgage because they can provide you with access to various lenders that you’d otherwise not learn about. They can help you with the large amount of paperwork you’ll need to provide and your loan application. Also, some lenders only work through mortgage brokers.
