by Buying your first home via a mortgage broker is a major milestone brimming with excitement, anticipation, and plenty of questions. If you’re like most first time home buyers in the US, you may be wondering how to navigate the issues of mortgage options, eligibility requirements, and paperwork.
You should also know that a mortgage broker’s job doesn’t end when you get your loan approval. They can help you understand closing costs too, explain the fine print, and even offer advice on managing your mortgage payments going forward.
What is a mortgage broker and how they help first time home buyers
A mortgage broker serves as an intermediary between you and various lenders, helping to find a mortgage loan tailored to your specific needs. Unlike loan officers who represent a specific bank, mortgage brokers have access to a wide range of lenders and products. This means you can compare different rates, terms, and loan types without doing all the legwork yourself. For first time home buyers, this can be especially helpful, as the mortgage landscape is filled with jargon, requirements, and options that can feel overwhelming.
You should know that mortgage brokers are paid based on a percentage of the loan amount they help you secure. The average base salary for a mortgage broker in the U.S. is around $101,997, which is notably higher than the average personal income in the country. This compensation structure means brokers are motivated to close deals, but it also means you should ask about their fees and how they’re paid before committing.
Why first time home buyers should consider a mortgage broker
There are several reasons why first time buyers gain from working with a mortgage broker. Brokers can connect you with various lenders, thereby increasing your chances of finding a loan that matches your financial situation. First time home buyers often have unique questions and concerns. A good broker will explain different mortgage types, eligibility requirements, and help you understand what you need to qualify.
By shopping around, you can find better rates or lower fees than you might on your own. The mortgage process involves gathering documents, comparing quotes, and negotiating terms. Brokers handle much of this for you, so you can focus on finding your home. And if you have a less than perfect credit score or a complicated financial situation, a broker might know lenders who are more flexible with their requirements.
What are the requirements and criteria for first time home buyers
When you’re applying for a mortgage, there are several key criteria lenders will look at. Your mortgage broker will help you understand these requirements and prepare your application. For an FHA loan, you’ll need a minimum credit score of 580 (or 500 if you can make a 10% down payment). A score of at least 620 is normally required for conventional loans. Lenders want to see that your monthly debt payments are less than 50% of your income, though lower is better.
Your broker can help you calculate your DTI and suggest ways to improve it if needed. You’ll need at least 3% down for a conventional loan, or 3.5% for an FHA loan. Some programs for first time buyers may offer assistance with your down payment. Lenders typically need a least of two years of steady employment and reliable income.
For more information on best categories, check out this post on: Mortgage pre approval: What does it mean?
If you’re self-employed or have gaps in your work history, your broker can guide you on what documentation you’ll need. You’re typically classified as a first time buyer if you haven’t owned a home within the last three years. Yet, there are exceptions. Single parents or displaced homemakers who once owned a home with a spouse may still qualify as first time buyers.
How does the application process work with a mortgage broker
Working with a mortgage broker starts with an opening consultation. You’ll discuss your financial situation, home buying goals, and any concerns you have. The broker will then gather your documentation like pay stubs, tax returns, and bank statements and help you finish a loan application.
Your broker submits your application to several lenders, compares offers, and explains your options. After your loan choice, the broker handles the documentation. They keep in touch with the lender and assist you in fulfilling any further needs. Meanwhile, you can focus on shopping for your new home.
Note: In some states, like New York, mortgage brokers must be registered. They must meet specific licensing requirements. This includes background checks and financial responsibility standards. This regulatory oversight is meant to protect you as a consumer.
Types of mortgage brokers and loans available to first time buyers
This widely depends, as do the loan options they can offer you. Some brokers specialize in working with first time buyers, low income borrowers, or buyers with unique circumstances. You should ask potential brokers about their experience and the types of loans they typically handle.
Bank of America mortgage
Is widely recognized for its affordability and strong support for first time buyers. They offer generous down payment assistance up to $10,000, and closing cost help up to $7,500. Their community affordable loan solution even allows buyers in certain markets to purchase with no down payment or closing costs, and to use non traditional credit sources like rent or utility payments for qualification. Bank of America is available in all 50 states, making it a reliable option if you’re looking for accessibility and financial support.
Guild mortgage
Is known for its wide range of loan options and flexible credit requirements. First time buyers with limited or non traditional credit histories can use alternative data, such as rental payment history, to apply. Guild also offers a 1% down payment advantage program, providing a 2% grant to eligible borrowers, which can be a game changer if you’re short on cash for a down payment. Guild operates in every state except New York, and their personalized approach is especially helpful for buyers who need extra guidance.
Chase mortgage
Is another reputable lender with a strong track record for serving first time buyers, especially those with low to moderate incomes. They offer a variety of loan types, including FHA and VA loans, and have a minimum down payment as low as 3% for conventional loans. Their nationwide presence and accessible branch locations make them a convenient choice if you value in person support.
City creek mortgage
Stands out as Utah’s top mortgage broker and is ranked #3 nationwide according to scotsman guide. They focus on transparency, offering instant online rate and fee quotes with no personal information required. City Creek is praised for its local market expertise, extended service hours, and a team of salary based loan officers who prioritize your needs. Their approach is especially valuable for first-time buyers who want clear, honest guidance and a tailored experience.
Common loan types for first time buyers
- FHA loans: Backed by the federal housing administration, these loans are popular with first time buyers because of their lower credit score and down payment requirements.
- Conventional loans: Not government backed, but often available with competitive rates for buyers with good credit.
- VA and USDA loans: Available to eligible veterans, active-duty service members, or buyers in rural areas, these loans offer benefits like no down payment or reduced fees. Your broker can help you decide which loan types you qualify for and which best fit your needs.
Are there any risks to using a mortgage broker
While mortgage brokers offer many benefits, there are a few things you should keep in mind. Some brokers may steer you toward loans that benefit them more than you, so it’s important to stay informed and compare offers independently when possible. And, while brokers can often find you a better deal, there’s no guarantee their rates will always be the lowest. You should still do some research on your own.
Meanwhile, some lenders do not cooperate with brokers at all, so relying entirely on one may limit your loan alternatives. That’s why combining your broker’s expertise with your own research can be a smart strategy.
How common is it for first time home buyers to use a mortgage broker
First time home buyers make up a large share of the U.S. mortgage market. In 2014, for example, about 54% of all purchase mortgages backed by government sponsored entities or the FHA went to first time buyers. Many of these buyers turn to mortgage brokers for help navigating the process, especially as lending rules and requirements have become more complex over the years. If you have friends or family who recently bought their first home, you’ll likely hear stories about how a broker made the process easier, or wished they’d had more guidance.
How can I work with a mortgage broker
Prior to working with a mortgage broker, have your finances in order. Put together all your recent bank statements, tax returns, and pay stubs. Check your credit report for errors, and pay down any outstanding debts if possible. The more prepared you are, the smoother your application process will be.
And don’t be afraid to ask questions. A good broker will welcome your curiosity and explain things in a way you understand. Whether you’re concerned about your credit, unsure about down payments, or confused by loan terms, your broker should be your advocate and guide.
Buying your first home is a big step, but with the right mortgage broker by your side, you can feel more confident and informed every step of the way. Thereby, you increase your chances of finding a mortgage that fits your needs, budget, and long-term goals.
