Guide to Choosing a Mortgage Lender as a First Time Home Buyer

Buying a home for the first time may make shopping for a mortgage lender a big chore. But like buying a car or an insurance policy, you should take the time to compare your options.

The best mortgage lenders for first time buyers without much equity are often government loans with low down payments and reasonable closing fees.

To choose the best lender for you, here are some tips:

Know Your Credit Score

Your credit score is important to figure out the type of lender you should choose. Find out what your credit score is from the three bureaus so you can learn more about how lenders are judging you. They will be looking for sure at your debt to income ratio, which will tell them how much money you can borrow. Keep in mind the amount you can borrow could be very different than what you can afford every month.

Do not worry if your credit score is not perfect. With enough determination and time, credit problems can be resolved. Be sure that you are making payments on time and not taking on too much debt. Having a higher score in the 700s will give you more lenders to choose from.

Inquire About First Time Buyer Programs in Your Area

Some mortgage lenders work with state agencies to offer big rate discounts, down payment help or educational resources to help the first-time home buyer get into their first home. These programs can include affordable loan and grant tools for public workers or veterans with student loans. Benefits may be combined to make it easy to buy your first home.

Look for Lenders that Work with Government Agencies

Mortgage loans offered by USDA, VA and FHA have easier income, credit and down payment standards. For example, USDA and VA loans can be had with zero down payment. FHA loans can be obtained with a 3.5% down payment. You also only need a credit score of approximately 580 credit score for that low-down payment. If you have a lower credit score, you could need a 10% down payment.

Note that not every lender will work with you if your credit score is that low. It is better to increase your score so you have better lending options.

Compare Interest Rates

Of course, you want to seek the lowest interest rate as a first-time buyer. But a common mistake is for first time buyers to only look at the interest rate. You also should look at the APR. This provides a more complete picture of what you will pay for the loan over time. You also should review application, appraisal, title and loan origination fees. These affect closing costs and will vary based upon the lender.

Loan officers tend to rattle off these numbers fast, but you should pay close attention. With mortgages, all of these details add up to real money every month.

Get a Mortgage Preapproval

Preapproval is especially important for the first-time buyer without a large down payment. It shows that a lender has approved you for a loan up to a certain amount, pending underwriting requirements. You will have a better idea of what your loan will be as well as interest rate if you were to borrow that money.

When you shop for a lender, make sure you compare your preapproval options. Some lenders will have you upload digital documents and you can get approval online in minutes. Others may require you to meet at the local branch to deliver key documents in person. If you are running into preapproval barriers because of a low credit score, ask the lender if there is anything they can do. Some lenders even help you find mistakes in your application or will accept nontraditional credit information, such as rent payments.

Check for First Time Buyer Incentives

As you are looking at lenders, you may find mortgage providers that offer incentives to first time buyers. They may reduce their origination fee to handle the loan or have some other teaser to get your business.

Being a first-time buyer can be intimidating in the mortgage acquisition process, but getting a loan is actually easier than you think with the above information in mind.