For anyone buying a house, purchasing a home is never easy. It can be a long, tedious process where the homebuyer is expected to understand exactly what they’re looking for, carefully consider their budget, calculate precisely how much they can spend, and calculate how much they should set aside for improvements and moving, and almost countless other things. Keller Williams The Trembley Group Realtors field calls from Myrtle Beach real estate buyers every day and more than any other subject, they’re asked about mortgage loan finance, especially from first time home buyers. 

This entire home buying process is especially more complicated and more difficult for first-time buyers. Having no experience frequently leaves a first-time homebuyer feeling overwhelmed and helpless. Throw into the equation the high possibility that the homebuyer is still paying off student loans, the prospect of saving for a down payment can seem overwhelming.

Nonetheless, every young couple or individual looking for their first home should be aware that they have plenty of options, especially when it comes to financing and purchasing the home of their dreams. Even first-time buyers aren’t locked into just one or two options. Let’s take a look at some of the mortgage loan options available for first-time buyers as well as some other crucial factors that every buyer, first-timer or seasoned, should consider when searching for a house.

Know Your Credit Score

Before considering all the housing options, new homebuyers should be aware of their credit score. Some lenders are open to giving loans to people with a lower score and less than perfect credit, but that almost always means a higher interest rate. The higher a new homebuyer’s credit score, the better their options of getting approved for the loan that they want.

In the United States, there are several consumer credit reporting agencies, including Experian, Equifax, and TransUnion. Every new home buyer and potential mortgagor should know that they are entitled to a free credit report once a year from these agencies. If a borrower utilizes these free reports wisely, they can see any changes or trends in their credit every four months. For example, requesting a report from Equifax in February, from Experian in June and from TransUnion in October means that homebuyer will always be up-to-date with their credit score.

Being aware of their score is especially useful if a homebuyer is trying to improve it. While improving a credit rating might take some time, it is possible to improve the score. Often, when examining a credit report, a homebuyer may notice mistakes. For anyone anticipating applying for a mortgage, it’s vital that the mistakes are reported and disputed immediately. Furthermore, awareness of a credit rating helps create good financial habits, like paying bills on time, avoiding closed accounts, etc.

What is a Home Loan

A home loan is also known as a mortgage loan or, simply (and incorrectly), a mortgage. It is a secured type of loan which a borrower uses to purchase a home. Since a home is usually the biggest single investment an individual makes during their lifetime, most home buyers use a home loan to make the purchase. The loans used to purchase a home have two parts. At closing, the purchaser will sign a loan document outlining the terms of the loan – the total amount, the number of payments, the interest rate, and the monthly payment, etc. The borrower will also sign a mortgage – a document that creates a lien on the home and pledges the home as collateral for the loan. If the loan is not repaid, the mortgage gives the lender has the right to claim the house and sell it to satisfy the debt.

Understanding how a mortgage and home loans work is vital for borrowers and they should be familiar with the process. First of all, first-time homebuyers should save enough for a down payment. Even if a homebuyer doesn’t have a down payment, there’s still a chance they can purchase a home. But making a down payment means that the homebuyer will have to borrow (and payback) less money. Also, because the mortgage document pledges the house as collateral for the loan, a home buyer should remember that the lender has the right to repossess the home in the event they are unable to make the payments as promised. The house serves security for the mortgage loan.

Where to Apply

When it comes to lenders, a homebuyer can turn to traditional sources like banks and credit unions. In addition, homebuyers can also look for a lender online. However, many states and cities have developed programs and grants which help first-time buyers get the house that fits their needs. So, in case you are a first-time buyer, you should make the most of these.

Keller Williams The Trembley Group is a company that was built on a customer service foundation. While on the surface, mortgage lenders pretty much appear to be the same, after all, mortgage rates and terms are set by the marketplace, many lenders might use the same source of mortgage money, and the FHA that guarantees the loan of one bank is the same FHA that guarantees a loan offered by another. But it isn’t that simple. What sets one mortgage originator apart from the others is the level of customer service offered. The real estate professionals Keller Williams the Trembley Group have found a wide variation in the level of service offered by mortgage lenders.

Whether buying a first home or buying a fourth, The mortgage professionals at Residential Mortgage Services understand that a home is likely the largest investments most buyers will ever make. Like the Real Estate Professionals at Keller Williams The Trembley Group, Residential Mortgage Services experienced mortgage originators ask the right questions and are prepared to answer a borrower’s questions to help them down the path to homeownership.

Residential Mortgage Services can help homebuyers purchase a new home with an FHA loan of one of their many other loan programs. They offer a variety of financing options, but in the eyes of the Keller Williams The Trembley Group Realtor, most importantly they do what they promise when they promise to do it. Homebuyers can count on them for flexible solutions and exceptional and personal customer service.

How to Qualify

A first-time buyer is someone who has never owned a home and several mortgage loan programs are specifically designed for first-time buyers. Any homebuyer who is part of the millennial generation is very likely a first-time buyer. All homebuyers, first-timers or seasoned, should look into all the various options to see if they qualify. Many of these programs often benefit people with low or moderate-income.

Alternatively, a homebuyer with an excellent credit score might not have to consider any of these options. Getting a regular mortgage might be the best option for any homebuyer with a FICO score above 720. In which case, a homebuyer won’t have to worry about all the various restrictions associated with first-time loans.

FHA Home Loan Program

The Federal Housing Administration (FHA) provides first-time homebuyers with a lot of help. The requirements to qualify for an FHA loan are more flexible than other traditional loans.  The purchased property must be a primary residence and the loan cannot be used for investment purposes. The homebuyer needs to have steady employment and must provide the FHA with paycheck stubs, tax returns, bank statements, and W-2s. Residential Mortgage Services website has a comprehensive list of the documentation needed to apply https://rmsmortgage.com/pages/sc

A great thing about an FHA loan is that it requires a relatively low minimum FICO score of 580. If the homebuyer qualifies for an FHA loan, it requires just 3.5% for the down payment. For example, if a home buyer decides to purchase a house valued at $280,000, they will need less than $10,000 for a down payment. The FHA even lets friends and family take care of the down payment as a gift. On the other hand, if the borrower’s credit score is between 500 and 579, they’ll need a 10% down payment.

Every FHA mortgage borrower should be aware that there is a catch – mortgage insurance. Borrowers have to pay upfront and annual premiums. This insurance does not protect the borrower; it protects the lender in case the borrower fails to pay.

The Federal Housing Administration (FHA) guarantees its approved lenders the reimbursement of their loss in the event a homeowner defaults. FHA's insurance pool pays out claims to lenders and servicers of its home loans, such as banks, credit unions, mortgage companies, and savings and loans. The FHA loan guarantee helps borrowers with less than perfect credit and modest incomes acquire financing for a home purchase or refinance.

Lending Limits for FHA Loans in Your State

The FHA has a maximum insurable loan amount known as the FHA lending limit. These loan limits are calculated and updated annually and are influenced by the conventional loan limits set by Fannie Mae and Freddie Mac. The type of home, such as single-family or duplex, can also affect these numbers.

For 2020, the FHA floor was set at $331,760 for single-family home loans in South Carolina. This minimum lending amount covers 80% of all U.S. counties. The FHA loan limit represents the maximum loan amount FHA will insure in South Carolina.

South Carolina FHA Loan Requirements

Keep in mind that each application is looked at individually, and FHA loans have a considerable amount of flexibility in what is required for approval. There are some concrete loan requirements set out by the FHA though, which dictates what loans they will insure.

The mandatory South Carolina FHA loan requirements for a home purchase are as follows:

• Primary Residence – A home buyer must occupy the home that they intend to purchase and the home must be the primary residence. The FHA does not insure investment properties. Multifamily homes are allowed, up to 4 units, but the homebuyer must occupy at least one of the unite for it to be eligible for an FHA home loan in South Carolina.

• Credit Score – A credit score of 580 or higher is needed for FHA loans. This includes first time home buyer mortgages, repeat buyer loans, and any FHA refinance program.

• Job History – Proof of employment for 2 years is required. It is ok if the homebuyer has changed jobs, but they need to show a consistency of income.

• Income Documentation – Pay stubs and tax returns are required to show employment income, as well as bank statements, including checking or savings accounts.

• DTI Ratio – Monthly debts, including the new mortgage payment, must not exceed 43% of a borrower’s take-home income. A mortgage applicant should calculate all of their current monthly debts (Do not include any debt that is not included on the credit report. Only those debts that appear on a credit report are counted). Take the total of current debts plus the expected new mortgage payment to get a total. For example, if current monthly debts are $750 and the new mortgage payment will be $1,000/month, the total monthly debts will be $1,750. The total debt amount divided by total monthly income is the DTI ratio. To qualify for an FHA mortgage, total monthly debts compared to the total monthly income cannot exceed 43%.

In addition to an FHA loan, here are a few other loan programs a first-time buyer might want to consider:

203(k) Rehab Loan

First-time homebuyers who are up to the challenge can opt for a fixer-upper. The FHA offers homebuyers the option to purchase and renovate a house with a single loan. These so-called rehab loans have similar requirements to a standard FHA loan, but they require a minimum credit score of 640. Renovating homebuyers are required to make a minimum of 3.5% down payment and the costs of the improvement must be at least $5,000.

Fannie Mae and Freddie Mac

Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that purchase mortgages on properties from lenders in the secondary mortgage market. They help first-time buyers achieve the goal of owning their dream home by creating liquidity in the mortgage market. Borrowers are required to make a minimum down payment of 3%. The down payment can even be a gift from family or friends. A minimum score of 620 is needed and borrowers have to pay for mortgage insurance.

VA Loans

The U.S. Department of Veteran Affairs offers great loans for military veterans and active-duty military. These VA-backed loans do not require a down payment and have lower-than-market interest rates. Sometimes, a funding fee is required but it can be included in the loan amount.

An enormous advantage for veterans and active duty service members is that is no required mortgage insurance and there is no minimum credit score. For borrowers struggling with mortgage payments, the VA will sometimes renegotiate the terms with the lender to make the loan more affordable.

In the event the borrower or their partner is injured and disabled, the borrower can apply for disability housing grants. The grant will help find a home that is adapted for the disability or will adapt the home to make it accessible.

Other Useful First-Time Buyer Loan Advice

If you and your partner are ready to take this step, make sure to do your research, look into every option you have and choose the one that fits you best. There are plenty of options out there and we’re sure you’ll make the right call.

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Our agents write often to give you the latest insights on owning a home or property in the Myrtle Beach, SC area.