Many first-time homebuyers struggle to come up with the cash for a down payment and closing costs. Knowing the best mortgage lenders for first-time buyers can help you become a homeowner, even if you don’t have perfect credit or a traditional 20% down payment.
If you’re in the market for your first home, here’s what you need to know to help you find the best first-time homebuyer loan.
U.S. News selects the Best Loan Companies by evaluating affordability, borrower eligibility criteria and customer service. Those with the highest overall scores are considered the best lenders.
To calculate each score, we use data about the lender and its loan offerings, giving greater weight to factors that matter most to borrowers. For mortgage lenders, we take into account each company’s customer service ratings, interest rates, loan product availability, minimum down payment, minimum FICO score and online features.
The weight each scoring factor receives is based on a nationwide survey on what borrowers look for in a lender.
To receive a rating, lenders must offer qualifying loans nationwide and have a good reputation within the industry. Read more about our methodology.
Caliber Home Loans of Coppell, Texas, offers mortgage products nationwide. Options include conventional, adjustable-rate, jumbo, refinancing, Federal Housing Administration, U.S. Department of Agriculture and Department of Veterans Affairs loans. Caliber has been in business since 2008, and is solely focused on home lending products.
Carrington Mortgage Services, founded in 2007, offers an array of mortgage and refinancing options to borrowers seeking conventional or government-backed loans. Its California-based parent company, Carrington Holding Co., was established in 2003 and provides a range of real estate services. Carrington Mortgage Services is based in California and also has offices in Arizona, Connecticut, Florida, Indiana and Maryland.
Pentagon Federal Credit Union, widely known as PenFed, offers borrowers access to many types of mortgages: conventional, adjustable rate, jumbo and Department of Veterans Affairs, plus refinancing loans and home equity lines of credit. The financial institution, which serves 2.5 million members, was established in 1935 and is based in McLean, Virginia.
North American Savings Bank, or NASB, is a Missouri-based bank and lender founded in 1927 that offers home mortgages nationally. NASB provides a variety of mortgage options, including conventional, Federal Housing Administration and Department of Veterans Affairs loans, and products for borrowers who might otherwise have trouble getting a mortgage.
AmeriSave Mortgage Corp. is an online lender that has been in business since 2002. It was one of the first to offer an offsite, digital mortgage experience for customers. The company says it has financed more than 664,000 borrowers since it began operating. With headquarters in Atlanta, AmeriSave services loans in 49 states and Washington, D.C.
What Are Current Mortgage Rates?
The average 30-year fixed mortgage rate rose from around 3% in December 2021 to 5.81% in June 2022, according to Freddie Mac. During the first week of August, however, mortgage interest rates fell below 5% for the first time since April. While rates dropped meaningfully, borrowing costs for both fixed-rate and adjustable-rate mortgages remain significantly higher now than they were this time last year. Here are the current mortgage rates, as of August 4:
- 30-year fixed: 4.99% with 0.8 point (down from 5.3% a week ago, up from 2.77% a year ago).
- 15-year fixed: 4.26% with 0.6 point (down from 4.58% a week ago, up from 2.1% a year ago).
- 5/1-year adjustable: 4.25% with 0.3 point (down from 4.29% a week ago, up from 2.4% a year ago).
There are different definitions of what it means to be a first-time homebuyer, says Tammy Andrews, vice president and branch manager for Motto Mortgage United in Fulton, Maryland. “From a lender’s perspective, it can be not ever owning a home, period,” she says. “But for different grant programs, it might mean not having owned a home in the last three years.”
A 3.5% down payment is required. It’s good for borrowers with lower credit scores and usually has looser debt-to-income ratio requirements than conventional loans. It carries an upfront mortgage insurance premium and monthly mortgage insurance payments.
No down payment is required. If you are a veteran or serving in the military, you may be eligible for these loans, which also don’t require private mortgage insurance but do have upfront costs.
No down payment required. To qualify, the property must be in an eligible rural location, and you’ll need to pay an annual guarantee fee each year.
Fannie Mae and Freddie Mac conventional loans
Required down payments can be as low as 3%. These have higher credit requirements but potentially lower interest rates. You will have to pay private mortgage insurance until you reach 20% equity.
There are a couple of ways to begin your research. Anna DeSimone, author of “Housing Finance 2020,” recommends starting with your state’s housing financing agency, which offers affordable mortgages based on housing characteristics and prices for its areas. There you will get an unbiased, independent opinion and be referred to approved lenders.
“They are subsidized by their state, and they work with FHA, VA, and Freddie and Fannie loans,” she says.
According to DeSimone, in addition to affordable mortgage programs, state agencies can give first-time homebuyers advice. Some states also help with home energy improvements and payment protection in case a borrower loses his or her job.
Andrews suggests another route to try is to work with a local lender or mortgage broker who knows about grant programs for particular areas. “It’s absolutely a great idea to shop around and ask a lot of questions,” she says, adding that a mortgage broker can do that shopping for you.
Consider this when choosing your mortgage lender:
- What type of products does the lender offer? If you’re considering an FHA or USDA loan, you’ll want to confirm that your lender offers those options.
- What interest rates and closing costs should you expect? Even a fraction of a percentage point can dramatically change the cost of the loan.
- Does the lender have experience with similar borrowers? Perhaps you have a lower credit score but also a low debt-to-income ratio – establish that the lender is able to work with you.
- Does the lender offer special programs for first-time homebuyers? Some lenders offer grants to help with closing costs.
- How is the lender’s customer service? Check online reviews, such as the Better Business Bureau, Trustpilot or the Consumer Financial Protection Bureau. If the lender is local, reach out to family and friends about their experience.
Whether you’re a first-time or repeat homebuyer, getting approved for a loan will depend on your ability to repay. “You have to build a picture to the mortgage lender that you have the strengths and responsibility to successfully finance the home mortgage,” says DeSimone. That will include a number of factors including your income, your assets, your existing debt and your credit score.
If you’re debt free, have a steady income and have an excellent credit score, that’s a big plus. Lenders can also look at compensating factors, such as large cash reserves, additional recurring income or a long history of on-time rent payment, in order to extend your borrowing power, says DeSimone. A key number that lenders consider is debt-to-income ratio, or how much of a borrower’s income is going toward paying off existing debts and housing costs.
You should aim to have a DTI ratio of less than 43% – that’s the highest ratio a borrower can have and still get a qualified mortgage. Don’t worry if you’re above that threshold as a first-time homebuyer, though. “Some programs are allowed to loosen ratios up to 50% for people who have compensating factors,” says DeSimone.
Start thinking like a lender to ensure you get approved for the amount you need. Build a picture that shows you can responsibly finance the loan, and gather documents to prove it. From there, reach out to a mortgage professional and do a buyer consultation, says Andrews.
“The old-school way of thinking is to go to a real estate agent first, but the key component is the money piece,” she says. Speaking with a mortgage professional is grounding and can help you get a ballpark budget and understand the credit score you need.
Whether or not you’re a first-time homebuyer, interest rates are higher for people who have lower credit scores. “The riskier it is to take on this debt, the more they are going to charge,” says DeSimone.
That said, it’s important to look at the entire loan package when choosing the best option. Many first-time homebuyers believe the loan with the lowest interest rate is the only way to go, but there are other factors to consider.
“If you’re getting a mortgage and have plenty of money to pay closing costs, and the house is in perfect condition, you can afford to shop around to try to get the best rate,” says DeSimone. But if you’re strapped for cash or buying a house that needs a little work, it might be worth paying a higher rate if it means you can keep more cash on hand.
“If it makes a difference between being a homeowner now or waiting, it might make more sense to spend a little bit more now,” says DeSimone.
Crunch the numbers to figure out what a higher rate will really cost. For example, if one loan option comes out to $18 more per month because of a higher interest rate, how does that compare with putting off homeownership and paying rent for another year – just to save for a bigger down payment loan and qualify for a lower rate? If housing prices rise, you could end up paying just as much anyway.
If you’re paying less than 20% for a down payment, you’ll likely need mortgage insurance.
For FHA loans, the upfront cost is 1.75% of the loan, which will be added to the total borrowed. If you make a down payment of less than 10%, you’ll pay monthly premiums for the life of the loan. However, if your down payment is 10% or more, monthly premiums end after 11 years.
VA loans don’t require borrowers to carry insurance, but they do have an upfront cost of 1.4% to 2.3% for first-time homebuyers, depending on the size of the down payment. USDA loans have upfront and annual fees, but they are considerably cheaper than FHA loans.
With a conventional loan, you may have to pay mortgage insurance as well. According to a 2021 Urban Institute report, private mortgage insurance rates typically range from 0.58% to 1.86%. The PMI is removed once your mortgage balance hits 78% of the original purchase price. You also can request your lender remove the PMI once you reach the 20% mark.
What Programs Are Available For First-Time Homebuyers?
And don’t forget to ask about state programs for down payment and closing cost assistance. Georgia offers up to $10,000 in down payment assistance to public protectors, educators, health care providers or active-duty service members. Ohio provides a down payment assistance program specifically for recent graduates. Program availability may depend on income level, credit score or county of residence.
Veterans United Home Loans offers mortgages in all 50 states and Washington, D.C., and specializes in Department of Veterans Affairs loans. Since 2016, Veterans United Home Loans has generated the largest number of VA purchase loans per year in the nation. The lender was founded in 2002 and is based in Columbia, Missouri.
Founded in 1990, Freedom Mortgage is one of the country’s largest loan originators and services, operating in all but two states plus the District of Columbia, the U.S. Virgin Islands and Puerto Rico. Based in Mount Laurel, New Jersey, Freedom Mortgage was named No. 1 Veterans Affairs lender and No. 1 Federal Housing Administration lender by the industry publication Inside Mortgage Finance. Freedom Mortgage offers a range of mortgage loans, including conventional, adjustable-rate, refinance, FHA, VA and U.S. Department of Agriculture. But what Freedom Mortgage is known for is its mission to help American military personnel purchase a home.
LoanDepot is a mortgage lender that operates nationally with more than 200 branches and delivers both a digital experience and face-to-face service. The lender offers fixed- and adjustable-rate conventional mortgages, Federal Housing Administration and Department of Veterans Affairs loans, as well as refinance and renovation loans. The company was founded in 2010 and is based in Foothill Ranch, California.
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