Are you interested in buying a home? Several first-time homebuyer programs are available to make your purchase less expensive. Even if you are buying your second or third home in your life, you can still get a government-backed home loan.
These loans typically have better terms than conventional mortgages. While it is easier to qualify for many government-backed loans, the requirements may factor in your location, income, credit score, and more. Read on to learn about home-loan options and their requirements.
In most cases, the federal government will not provide loans to you directly. Instead, approved lenders manage loans according to the government program. So, when you apply for financing, the lender will ask which type of loan you are applying for.
Government-backed low interest home loans can save you thousands of dollars in upfront purchasing fees, as well as reduce your monthly payment. Housing programs through government agencies also have loans if you need to make home renovations.
Lenders look at the following criteria when you apply for a mortgage:
- Your credit score will tell lenders if you are a reliable borrower. For conventional loans – those the government does not back – most banks require a score of at least 620.
If you have a high credit score, the lending company may offer a lower rate. However, you may not be able to get a conventional loan if you have a poor credit history.
- Lenders determine your debt-to-income ratio by dividing your monthly debts by your monthly income. The lender will not include your rent payment since the mortgage payment will replace that.
They will add your monthly obligations (like car and student loan payments) to your potential mortgage and fees. For example, if your bills total $2,150 and your household earnings total $5,000 in a month, your debt-to-income ratio is 43 percent.
Note: Some financing options allow you to rent your home before purchasing it. Click to the next slide to learn more about this rent-to-own option.