Buying a home is an exciting milestone—and a daunting process. Especially for prospective buyers who don't know if they earn enough, they may have questions about qualifying for a traditional home loan.
First, it’s important to understand how lenders determine loan eligibility. They look at a variety of factors in addition to your income to determine your ability to pay back a loan, including your credit history, debt, and savings. Though most traditional mortgages might require a 20% down payment, there are multiple mortgage options that require a smaller down payment while still giving potential homeowners the stability and flexibility they need. The type of mortgage you’re applying for determines the exact requirements for borrowers, so don’t give up on your goal before exploring all of your options.
Here are three non-traditional loans for buyers with a range of financial situations and backgrounds to consider—and some tips on how to cut costs before you start your search.
FHA Loan
A Federal Housing Administration (FHA) loan is ideal for borrowers who have a less than perfect credit score and are looking for a low down payment on their new home. These loans are government-insured and help borrowers secure mortgages while putting down as little as 3.5% of the cost of their home. You must have fair credit, or a score of at least 580, to qualify for an FHA loan, so it’s important to have established some credit history before applying.
ARM Loan
For borrowers who want to move into their new home as soon as possible and lock in its value, an Adjustable-Rate Mortgage (ARM) loan is a straightforward and efficient option. These loans provide low closing costs and a low fixed interest rate that then periodically adjusts based on the current market rate. ARM loans are generally capped, meaning there’s a limit on the annual increase in the interest rate. For homebuyers who are expecting to move in the next few years or their income to rise by the time the adjustment period begins, ARM loans are a great option.
VA Loan
A Veteran’s Association (VA) loan helps veterans, active-duty service members and their families obtain home financing. With little-to-no down payment and low interest rates, this is a great alternative for service members looking to save money. VA loans can be secured without a down payment, and there is no maximum loan limit.
Tips for Securing a Loan and Buying a Home
At First American Bank, we want our clients to be as prepared as possible. When you decide to embark on the homebuying process, there are a few things to keep in mind:
- First, understand precisely what you can afford. That means factoring the down payment, closing costs, and any related fees into your total budget.
- Second, get your credit in order. This is key since a higher credit score means a lower interest rate. Start by talking to a First American Bank Loan Officer who can get you started on our prequalification process. We will review your credit to see what range you fall into and share strategies to improve your credit score, like fixing errors.
- Lastly, begin saving and nail down any grants or gifts you can receive. Many prospective buyers tend to overlook down payment grants because they may assume they don’t meet the requirements, but they can significantly help in securing a loan. You may not be aware that you qualify for monetary assistance—and that’s where our professional loan officers come in. They'll carefully assess all of your information and determine if you are eligible for a grant, and help you find any financial tools available to achieve your goal.
Our loan officers are here to help you every step of the way. Our team of experts works diligently to help our clients through any challenges they may face. A new home shouldn't put you in unmanageable debt or create unnecessary stress. At First American Bank, we’ll help you get there.
