Conventional First Time Home Buyer ProgramIf you haven't owned in 3 years you could qualify as a first time home buyer!
Conventional First Time Home Buyer Program
Most of the time people think of government programs when it comes to being a first time home buyer. You can however utilize conventional financing with as little as 3% down as a first time home buyer. Other programs allow for 3.5% down through the FHA or $0 down with USDA, but there can be disadvantages to those programs in comparison to conventional financing.
Do I Qualify as a First Time Home Buyer?
If you have not owned a home in the last 3 years then yes you would qualify as a first time home buyer. Qualifying as a first time home buyer means that you can utilize conventional financing with as little as 3% down. If you have owned property within the last 3 years then the lowest down payment you would be eligible for utilizing conventional financing would be 5% down. If you have owned within the last 3 years and you don’t have the 5% down payment required to utilize conventional financing then we would recommend applying for a FHA mortgage or a USDA mortgage.
How Does Conventional Financing Compare?
Conventional financing for a first time home buyer compared to other government programs can have its advantages. If a borrower utilizes FHA or USDA financing (which they can use even if they aren’t a first time home buyer) there will be a guarantee fee that gets added to the loan. So if the base loan amount is $200,000 if it were an FHA loan the loan would increase to $203,500 to cover that fee. If it was a USDA loan it would go to $202,000. There is no guarantee fee built into conventional financing.
What About Mortgage Insurance?
Unless you are putting 20% down utilizing conventional financing there will be some kind of mortgage insurance to pay in the case of default. With FHA financing the mortgage insurance is .85% no matter what the loan amount is up the FHA loan limit for your county. With USDA financing its .35%, USDA is a great program for first time home buyers but there is geographic and household income restrictions for the program. Mortgage insurance rates for conventional financing is driven by credit score and loan to value ratios. The higher the credit score and the lower the loan to value ratio the lower the mortgage insurance rate will be. It however is not for the life of the loan like FHA or USDA financing. When you reach 78% loan to value it will fall off. This makes for a great feature for first time home buyer who use conventional financing.
What is the Minimum Credit Score?
The minimum credit score for conventional financing is 620. Your interest rate and mortgage insurance rate will be driven by your credit score. Like with any loan program the higher your credit the better your interest rate will be, but unique to conventional financing, the higher your credit score, the lower your mortgage insurance will be as well. This can range quite a bit so reach out to us for a mortgage insurance quote but if your credit is good your mortgage can be less than if you are utilizing FHA financing at .85%. If you credit score is low it could be higher. Keep in mind though, mortgage insurance with FHA is for the life of the loan, it falls off with conventional financing. In typical markets FHA and USDA minimum credit scores are lower than 620. In those cases a government loan program could be better for you. Additionally FHA financing can allow for higher debt to income ratio thresholds.
Seller Concessions for a First Time Home Buyer Using Conventional Financing
For first time home buyers its common to ask the seller to help contribute to your closing costs and pre-paids. Pre-paids are things like your costs for homeowners insurance and property taxes. If you are putting down less than 10% utilizing conventional financing you can ask for up to 3% of the sales price to go towards your closing costs. This may or may not cover all of your closing costs to be aware of they are before you put an offer in! Typically on a $200,000 house 3% will cover all of the closing costs and pre-paids but it depends on each individual property and buyer.