Being a first-time home buyer is about more than just becoming a home owner for the first time. Qualified first-time buyers may be eligible for conventional low down payment loans such as the Fannie Mae HomeReady and Freddie Mac Home Possible loan programs, government-backed low down payment loans such as the FHA loan, and zero down payment loans such as the VA loan for veterans and service people.
Here’s our list of the top 3 mortgage lenders for first-time buyers in 2021, along with useful tips to make the most out of your first-time buying experience.
Min. down payment:
- Fast pre-approval
- No origination fees
- Only 3-6 weeks to close
- Not licensed in 4 states (HI, MA, NV, NH)
- No physical branches
Better Mortgage, also known as Better, is a tech-powered independent mortgage lender backed by big investors like Citi, Goldman Sachs, and American Express. The Better.com application process is a truly digital experience. Thanks to its streamlined online platform, Better Mortgage is able to show you rates and get you pre-approved in minutes. Even at its slowest, it closes loans about 10 days quicker than the industry average.
Better offers low down payment mortgages through the HomeReady loan program, which we already described above in our AmeriSave review. It’s also worth noting that Better makes mortgages a lot simpler for everyone – first-time buyers and non-first-time buyers alike. For example, it charges no origination fees, shaving a significant amount off the closing costs you pay at the start of your mortgage.
In order to help lenders identify and assist first-time buyers, the Department of Housing and Urban Development has created guidelines to what constitutes a first-time homebuyer. Under these guidelines, a first-time homebuyer is an individual who meets any of the following criteria:
- An individual who has had no ownership in a principal residence during the 3-year period ending on the date of purchase of the property. This includes a spouse (if either meets the above test, they are considered first-time homebuyers).
- A single parent who has only owned with a former spouse while married.
- A single parent who previously co-owned a home while they were married.
- An individual who is a displaced homemaker and has only owned with a spouse.
- An individual who has only owned a principal residence not permanently affixed to a permanent foundation in accordance with applicable regulations.
- An individual who has only owned a property that was not in compliance with state, local or model building codes and which cannot be brought into compliance for less than the cost of constructing a permanent structure.
For many first-time homebuyers, the primary barrier to buying a home is not having the money for a down payment. Low down payment loans are one solution, because they allow first time buyers to get into a home with just a 3% down payment, instead of the usual 20%. In this section, we outline some of the other forms of assistance.
Down payment assistance. Depending where you live, down payment assistance may be available from state or local government agencies, private entities, or nonprofits. One form of assistance available to first-time borrowers across the country (except New York) is the Chenoa Fund. This program is administered by CBC Mortgage Agency, a federally chartered government agency. Provided you meet certain eligibility requirements, the Chenoa Fund may offer up to 3.5% down payment assistance.
HomePath homes. HomePath homes are foreclosed home offered for sale by Fannie Mae, one of the two government-sponsored enterprises that guarantee qualified mortgage loans via the secondary market. Benefits of a HomePath mortgage include low down payment, quick financing, and below average sale prices.
HUD home buying programs. In certain circumstances, first-time buyers may be eligible for assistance programs run by the Department of Housing and Urban Development. For example, the Good Neighbor Next Door program offers people in certain professions (law enforcement, teachers, firefighters, emergency medical personnel) discounts of up to 50% on homes in “revitalization areas”. To qualify, you must commit to living in the home for at least three years.
Buying your first home can be an exciting but daunting experience. If you don’t quite have the funds for a 20% down payment, then the alternatives range from low down payment mortgages to various forms of assistance. As always, make sure to shop around between multiple lenders before making a final decision.