If you’re a recent college grad, you’ve likely heard speeches about pursuing your passions and believing in yourself, but you probably haven’t heard much about establishing a good credit history. Here’s what you need to know.

It matters — a lot

Qualifying for mortgages, auto loans, apartments and even jobs has become dependent, to some degree, on your credit history.

Find out where you stand

The first step is knowing your current status. Access your credit report by visiting Annual Credit Report.com. Make sure all the information on the report is accurate, because errors can — and do — occur. Damaging discrepancies need to be corrected right away.

Build a credit history

Your credit history is one of the key factors making up your credit score, the all-important three-digit number that determines the rates you pay on everything from credit cards to mortgages to auto insurance.

The best time to build a credit history is when you’re young, and the best way to start a credit history is to get a credit card. This may sound counterintuitive, but if you don’t have a credit card, the scoring system has no information to go on for assessing your creditworthiness, so you come across as a credit risk.

Research credit card options

While many of the major issuers offer cards geared toward new applicants with little or no credit history, you might stand a better chance of getting a card at a credit union. Size up your card options on a site such as LowCards.com.

Gas cards and department store cards are also typically easy to get and can be a good place to start if your options are limited.

Another possibility — especially if you don’t have any credit history or your credit is damaged — is to get a secured card. These cards work just like a regular credit card, except that you place a security deposit with the credit card issuer to obtain one. They typically require $200 or more for the deposit, and this amount becomes the credit line for the account.

Use credit responsiblyThe way to keep your credit score high is to spend responsibly within your means. Don’t use more than 30 percent of your available credit, and pay off your balances in full and on time every month. Your payment history contributes to 35 percent of your credit score, so this point is important.

Chip away at student loans

Student loans are a form of debt, and are therefore taken into account as part of your credit score. And while you may be worried about a lender seeing all of this debt (likely tens of thousands of dollars), there’s no need to be concerned if you’re handling your finances properly. Just be sure you’re managing your debt obligations and repaying them on time, every time.

When couples start a new journey as homeowners, questions can linger as to whose name (or names) should be listed on the mortgage and title. Many couples want a 50/50 split, indicating equal ownership to the asset, but sometimes that isn’t the best financial decision. Plus, with more than one person on the loan, the legalities of who owns the home can get tricky. A home is often the largest purchase a couple or an individual will make in their lifetime, so ownership can have big financial implications for the future.

Title vs. mortgage

For starters, it’s important to note the difference between a mortgage and a title. A property title and a mortgage are not interchangeable terms.

In short, a mortgage is an agreement to pay back the loan amount borrowed to buy a home. A title refers to the rights of ownership to the property. Many people assume that as a couple, both names are listed on both documents as 50/50 owners, but they don’t have to be. Listing both names might not make the most sense for you.

Making sense of mortgages

For many, mortgages are a staple of homeownership. According to the Zillow Group Consumer Housing Trends Report 2017, more than three-quarters (76 percent) of American households who bought a home last year obtained a mortgage to do so.

When a couple applies jointly for a mortgage, lenders don’t use an average of both borrowers’ FICO scores. Instead, each borrower has three FICO scores from the three credit-reporting agencies, and lenders review those scores to acquire the mid-value for each borrower. Then, lenders use the lower score for the joint loan application. This is perhaps the biggest downside of a joint mortgage if you have stronger credit than your co-borrower.

So, if you or your partner has poor credit, consider applying alone to keep that low score from driving your interest rate up. However, a single income could cause you to qualify for a lower amount on the loan.

Before committing to co-borrowing, think about doing some scenario evaluation with a lender to figure out which would make more financial sense for you and your family.
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True ownership

If you decide only one name on the mortgage makes the most sense, but you’re concerned about your share of ownership of the home, don’t worry. Both names can be on the title of the home without being on the mortgage. Generally, it’s best to add a spouse or partner to the title of the home at the time of closing if you want to avoid extra steps and potential hassle. Your lender could refuse to allow you to add another person — many mortgages have a clause requiring a mortgage to be paid in full if you want to make changes. On the bright side, some lenders may waive it to add a family member.

In the event you opt for two names on the title and only one on the mortgage, both of you are owners.

The person who signed the mortgage, however, is the one obligated to pay off the loan. If you’re not on the mortgage, you aren’t held responsible by the lending institution for ensuring the loan is paid.

Not on mortgage or title

Not being on either the mortgage or the title can put you in quite the predicament regarding homeownership rights. Legally, you have no ownership of the home if you aren’t listed on the title. If things go sour with the relationship, you have no rights to the home or any equity.

​To be safe, the general rule of homeownership comes down to whose names are listed on the title of the home, not the mortgage.

The arrival of spring means it’s time to start fresh. Along with pulling out your warm-weather wardrobe and tackling spring cleaning, you may have a bigger project on your to-do list: buying a new home.

Before you start on your home-shopping journey, check out these 10 home buying tips to save you both time and money.

Find the right agent

Real estate expert Joe Manausa says the key to happy spring home buying is finding the most qualified agent to guide you through the process.

With reviews available at your fingertips, finding a real estate agent you trust can be easy — provided you take the time to do some research.

Check for agents with the best reviews, and give them a call. They’ll relieve some of the pressures of home buying, and walk you through all the necessary steps.

Think location

Sure, the three things that matter most in real estate are “location, location, and location.” Nonetheless, some buyers end up purchasing a home in a location that’s not right for them, simply because they make their choice for all the wrong reasons.

“They’re looking at a house in the wrong area or the wrong school district, but they buy it because they like the kitchen,” Manausa says.

Use the new open house

The internet has completely changed the home-buying process, making it easier to choose which homes to go see in person.

With 3-D tours available on the web, buyers can tour a home from their mobile device or a computer. Home buyers use online resources during their home search.

Buy a home, not a project

Buyers who purchase a fixer-upper can end up spending the same (if not more) than they would on a new home.

“When buying a home, pay close attention to the ‘bones’ … and avoid getting caught up in the cosmetic features,” advises Dan Schaeffer, owner of Five Star Painting of Austin.

If the kitchen cabinets are in good shape, but you want the space to be brighter, adding a fresh coat of paint is easier and less expensive than replacing all the cabinets.

Ka-ching! Be a cash buyer

Sellers are more likely to choose the buyer who already has money in hand over an offer that’s contingent on a mortgage loan.

But if you can’t pay cash, getting pre-qualified for a loan can help the seller feel more confident that you’ll be able to secure financing.

Avoid disaster — get a warranty

The last thing you want after buying a home is for something to go wrong. You protect your car, so why not your home? Manausa recommends purchasing a home warranty: “[They’re] very affordable, and cover all the things that go wrong.” Your wallet will thank you.

Make inspection time count

Small problems eventually turn into big problems. The wood could rot, drains could leak, or the electrical panel may not be up to code. “Hire experts, and always get your home inspected,” adds Nathanael Toms, owner of Mr. Electric of Southwest Missouri.

If the inspection reveals issues, be sure to deal with them effectively. For example, “it’s very important that a licensed electrician makes sure all circuits work properly,” say Dana Philpot, owner of Mr. Electric of Central Kentucky.

Put safety first

No matter the neighborhood or the home, your family’s safety should always be the number one priority after purchasing a home.

“Even if the previous owner promised to return the copy of every key, it’s always a good idea to change the locks throughout the exterior of the home,” says J.B. Sassano, president of Mr. Handyman. “If the house has an alarm system, remember to change the code — and don’t forget the garage door.”

Fix common repairs

Repairs may come in the form of patching up small nail holes or weatherproofing electrical outlets. Whatever the need, Schaeffer recommends fixing the repairs before moving in your belongings. “An empty house is easier to maneuver and clean,” he says.

For bigger jobs, find a professional to complete the repairs. Sites such as Neighborly can help you find home services providers.

Add the finishing touches

The best part about buying a new house is making it a home. Change the color of the walls, update the lighting, or add a more personal touch with a photo gallery wall.

“It’s important to find the right gallery layout by measuring the wall space, which determines the size of photos you can use,” Sassano says. “Lightweight frames are the safest option, especially when hanging on drywall.”

Navigating the purchase of a home can be overwhelming for first-time buyers. Lenders require documentation of seemingly every detail of your life before granting a loan. And of course, they will require a credit check.

A question many buyers have is whether a lender pulls your credit more than once during the purchase process. The answer is yes. Lenders pull borrowers’ credit in the beginning of the approval process, and then again just prior to closing.

Initial credit check for preapproval

In the first phase of acquiring a loan, pre-qualification, you’ll self-report financial information. Lenders want to know details such as your credit score, social security number, marital status, history of your residence, employment and income, account balances, debt payments and balances, confirmation of any foreclosures or bankruptcies in the last seven years and sourcing of a down payment. This is only a portion of the total information needed for your mortgage application.

Once you’re ready to get preapproved for a loan, lenders will verify your financial information. During this phase, lenders require documentation to confirm the information in your application and pull your credit history for the first time. You may be required to submit a letter of explanation for each credit inquiry in recent years, such as opening a new credit card, and for any derogatory information in your history, like a missed payment.

Once you find a home within budget and make an offer, additional or updated documentation may be required. Underwriters then analyze the risk of offering you a loan based on the information in your application, credit history and the property’s value.

Second credit check at closing

It can take time for your offer to be accepted, and for your loan to pass underwriting. During this period from the initial credit check to closing, new credit incidents may occur on your history. Many lenders pull borrowers’ credit a second time just prior to closing to verify your credit score remains the same, and therefore the risk to the lender hasn’t changed. If you were late on a payment and were sent to collections, it can affect your loan. Or, if you acquired any new loans or lines of credit and used those credit lines, your debt-to-income ratio would change, which can also affect your loan eligibility.

If the second credit check results match the first, closing should occur on schedule. If the new report is lower or concerning to the lender, you could lose the loan. Alternatively, the lender may send your application back through underwriting for a second review.

​It’s important for buyers to be aware that most lenders run a final credit check before closing, so the home-buying window is a time to prudently mind your credit.

Home buyers today face tough challenges — housing prices have soared, a dollar doesn’t go as far as it once did and rent is more expensive than the past.

How are people today making such a large purchase despite these hurdles? With more flexibility and a bit of financing creativity, today’s buyers are finding ways to achieve homeownership.

Know your options (and credit score)

To even begin the home buying process, it’s important to know what resources are available.

According to a 2017 Fannie Mae working paper, many Americans don’t have a strong, or even basic, understanding of what it takes financially to buy a home, nor if they meet the criteria.

The first step to knowing if you can afford a home is figuring out what financing options are available to you, including what mortgages you’re eligible for and how much you need/can afford to put down upfront.

Fannie Mae discovered that most buyers don’t know the minimum FICO score required by lenders and that 49 percent of buyers don’t even know what their credit score is.

Home shoppers also aren’t sure how much they have to put down on a home, and about 40 percent are unsure of the lender-required minimum down payment. Plus, three-quarters of buyers don’t know about programs available to help with down payments, like FHA loans.

Before buyers even start thinking about saving for a home, they should know what their financial resources are and if they’re eligible to buy.

Make enough money to save

With fewer resources to pull from than their older, wealthier counterparts, renters wanting to buy face tough financial headwinds.

According to the Consumer Housing Trends Report 2017, renter households typically earn a median income of $37,500 annually, which is $50,000 less than the median household income netted by households who recently bought a home (of whom the median household income is $87,500 annually).

While there are ways to enter into homeownership without making $87,500 in household income, it’s hard to afford to buy if you make significantly less. “If you’re making $37,500 per year, it’s probably not feasible for you to buy in almost any market,” says Chief Economist Dr. Svenja Gudell.

Only 29 percent of Americans make $87,500 or more, per U.S. Census Bureau data. For perspective, only one of the top 10 most common jobs in the United States carries a salary above $37,500, meaning the jobs that the majority of Americans hold bring in less money than the median renter household.

While households purchasing homes are more likely to have two incomes than renter households (and thus a higher median household income combined), even two-income households struggle to afford to buy in competitive markets.

Save enough cash (but not as much as you think)

One of the most daunting parts of home buying? The down payment. In fact, two-thirds of renters cite saving for a down payment as the biggest hurdle to buying a home, according to the Housing Aspirations Report.

Per findings from the Consumer Housing Trends Report 2017, almost one-third (29 percent) of buyers active in the market express difficulty saving for the down payment.

For people buying the national median home valued at $201,900, with the traditional 20 percent down payment, that’s $40,380 upfront — just to move in.

“The down payment remains a hurdle for a lot of people,” says Gudell. “But they should know they don’t have to put 20 percent down.”

Although putting down less than 20 percent means additional considerations, such as the cost for private mortgage insurance (PMI), some find it worth the hassle. In fact, only one-quarter of buyers (24 percent) put 20 percent down, and just over half of buyers (55 percent) put less than the traditional 20 percent down.

Buyers are also getting creative about piecing together a down payment from multiple sources. According to the report findings, nearly 1 in 4 buyers (24 percent) build a down payment from two or more sources, including saving, gifts, loans, the sale of a previous home, stocks, retirement funds and other resources.
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Know your deal breakers, but be flexible

To get into a home — even if it’s not the home of their dreams — some of today’s buyers are considering homes and locations outside of their initial wish list and getting increasingly flexible when it comes to neighborhood, house condition and even home type.

Although single-family homes remain a dream for most home seekers, buyers today consider and buy condos and townhouses to secure a home in their ideal location. Buyers with household incomes under $50,000 are more likely to consider homes outside of the traditional single-family residence (40 percent), compared to those with incomes of $50,000 or above (24 percent). 

“I do think people get discouraged when they look in their target neighborhood and they see homes around $170,000 when they’re looking for a $110,000 home,” Gudell says.

Affordably priced homes do, in fact, exist. But in popular areas, where people most often want to live, it’s going to be harder to find that cheaper home, Gudell says.

“If you’re willing to take a longer commute and make a couple trade-offs, you might be able to find a home that is farther out that might be cheaper,” Gudell explains. “You have to leave the paved path before you can find cheaper choices.”

Being a first time home buyer is as much of a skill as it is a privilege. Not unlike every other skill you have managed to acquire up to this point, buying your first home should be met with an acute attention to detail and a mind for due diligence. If for nothing else, home buying skills can be honed to the point that the scales will tip in favor of those that are the most prepared. That said, there are absolutely things you can do and learn to make the home buying process a positive one. If that sounds like something you could get behind, here are some first time home buyer tips you can’t afford to ignore.

First Time Home Buyer Tips You’d Be Foolish To Ignore

Here are some of our favorite first time home buyer tips we feel everyone would be better off sticking to:

• Start Early: The first time home buyer process starts well before you set foot inside your first open house, or even before you start looking at homes online. More specifically, we maintain that a first time home buyer should initiate their purchase at least 12 months prior to their impending transaction. That way, you’ll have ample time to get the things that matter the most in order: finances, credit score and expectations.
• Differentiate Between Pre-Approval & Pre-Qualified: While a pre-approval may sound like a pre-qualification, the two indicators have significant differences that warrant your consideration. Receiving a pre-qualification from your bank is one of the first steps you should take as a first time home buyer, but it’s a very preliminary move. After all, a pre-qualification is nothing more than a ballpark estimate of the loan you might qualify for. Receiving pre-approval, on the other hand, is a bit more intensive. As the next step, pre-approval will have first time home buyers submit the appropriate credentials in exchange for the exact amount they will be eligible to receive. That way, you know exactly how much money you will have to work with.
• Save, Save, Save: Buying a home is not cheap, especially with the historically high prices we are seeing today. That said, it’s in the best interest of perspective owners to save as much as they can. In addition to the down payment, which can range anywhere in the neighborhood of three to 20 percent, buyers will need to account for the costs that have become synonymous with home ownership. It also doesn’t hurt to have a “rainy day” fund for emergencies.
• Land On A Price Point: Identify how much you are comfortable spending on a mortgage as soon as you can. Be sure to err on the side of caution, as not to overextend your finances early and often. Pay special considerations to your debt-to-income ratio (the banks certainly will), and use it to get a better idea of how much you are comfortable spending every month.
• Check Your Credit: Be sure to check your credit early, as it is an important indicator banks will use to determine your ability to borrow. What’s more, credit score changes don’t happen overnight. Get to work on any imperfections in your credit score as soon as possible, as even small changes can take time to iron out. It’s also worth noting that you shouldn’t open any new accounts at this time. This may be the single greatest piece of advice that is most overlooked by new buyers.
• Research Loan Options: First time home buyers are awarded the opportunity to choose from several different types of loans from different originators. That means it’s quite common for banks to compete for your business by offering different terms. As a result, I highly recommend shopping around for the loan you intend to use. Do not simply buy into the first one that comes across your table. Take your time and understand the terms available on each and proceed to make a decision only once you have examined all of your options.
• Consider Working With An Agent: Far too many first time home buyers are eager to navigate the process by themselves; they assume that finding and buying a home is as simple as typing your criteria into an online search engine. Unfortunately, it’s not. In fact, buying a home is a complex process; one that can be made easier and more affordable with a professional. You see, while hiring a real estate agent may cost you more money upfront, their services can very easily pay for themselves. You may even find that working with an agent saves you more than the price it cost to hire them. On top of that, they will save you a lot of time and headache.
• Make A List Of Needs And Wants: I highly recommend drafting a list of the things you want in your first home and the things you need. Obviously, prioritize the needs ahead of the wants, but be sure to reference your list when making the tough decisions. Perhaps even more specifically, don’t forego your needs for wants, as buying a home is typically a long-term decision. Having a wants and needs list will also help you in the decision making process when you are comparing similar properties down the road.
• Always Have The Home Inspected: Despite whatever the current owner says, do not take their word for the condition the home is in. Instead, insist on having the property professionally inspected. That way, you will have an unbiased idea of the home’s status. The last thing you want is to move into a new home only to find out it has foundation issues.
• Trust In Nearby Comparables: Comparables, or “comps” for short, are essentially similar properties to the one you intend to buy. They are, for all intents and purposes, your best barometer for how much a home should cost. That said, analyze the comps in your area to make sure your home is priced correctly. In doing so, you may find some leverage in negotiating a lower price.

We want to make it abundantly clear: first time home buyer tips can range from the utterly useless to the invaluable. Those we hit on above lean towards the latter, but they are far from the only tips you should take to heart. Buying a home is a complex process that is made easier by understanding as much as you can. So in addition to what I spoke of above, do your best to educate yourself on the process.

Common First Time Home Buyer Mistakes To Avoid

Here are some of the most common first time home buyer mistakes, and how to avoid making them yourself:

• Not Working With An Agent: One of the single greatest mistakes first time home buyers can make is to neglect the services of a professional real estate agent; namely, because the right person can save you a considerable amount of time and money. You see, far too many inexperienced home buyers think they will save money by foregoing the assistance of an agent, but their assumptions couldn’t be more wrong. While it’s true, working with an agent does come with an inherent cost, it’s well worth the price of admission. More often than not, a good agent can simultaneously save you more money than their services cost, find you a home that meets all of your needs, and save you a considerable amount of time. Real estate agents are, in themselves, an investment.
• Shopping For A Home Before A Mortgage: Before you even consider setting foot inside of a model home or searching for your dream house online, you must first identify how much home you can afford. Consequently, far too many first time buyers get their order of operations reversed; they are too excited and start looking at homes immediately after they decide they want to buy — all that will do is lead to disappointment. Instead of looking for a home first, you should shop for mortgages. Get pre-qualified and pre-approved, that way you know exactly how much money you will have at your disposal when the time comes. Doing so will prevent you from wasting time looking at homes that were never in your price range to begin with.
• Starting Too Late: I recommend initiating the buying process at least a year out. In other words, I don’t want you to find yourself short on time when the moment comes to make a decision. Buying a home is one of the biggest decisions you will ever make; it only makes sense that you will put some effort into it. That said, give yourself the time to get things in order. Do not start looking right before you want to buy, and instead give yourself enough time to do it right. That way, you will have time to get finances in order, and even make sure your credit score is up to par.

First Time Home Buyer Qualifications

First Time Home Buyer Credit Score

The first time home buyer credit score is one of the most important indicators lenders use to gauge a borrower’s trustworthiness. It is the credit score, after all, that best defines a person’s history with borrowing. That said, it’s in the best interest of first time home buyers to have a credit score that meets the minimum requirements of today’s lenders.

First time home buyers should have a credit score of at least 620 if they hope to receive a conventional loan, and a minimum credit score of 500 if they intend to qualify for an FHA loan.

First Time Home Buyer Down Payment

The first time home buyer down payment will depend largely on the type of loan in question. FHA loans, for example, require a down payment of at least 3.5% for those with a credit score of 580 or higher. If, however, you apply for an FHA loan with a credit score between 500 and 579, you will be required to pay at least 10% down. Conventional loans, on the other hand, will require a downpayment somewhere in the neighborhood of 5% and 20%, as long as you meet the minimum credit score requirement: 620. It is worth noting, however, that most lenders will require borrowers that pay less than 20% down to pay what is known as private mortgage insurance (PMI) — it’s the lender’s method of protecting themselves from defaulting borrowers. According to BankRate, “PMI fees vary from around 0.3 percent to about 1.5 percent of the original loan amount per year, depending on the size of the down payment and the borrower’s credit score.”

First Time Home Buyer Loans And Grants

Here are some of the most common first time home buyer loans and grants:

• Federal Housing Administration (FHA) Loan
• U.S. Department Of Agriculture (USDA) Loan
• U.S. Department Of Veterans Affairs (VA) Loan
• Fannie Mae & Freddie Mac Loans
• Owner Financed Loans
• Conforming Loans
• Jumbo Loans
• Private & Hard Money Lenders
• Fixed-Rate

Not surprisingly, these are a few of the most common loans made available to today’s first time buyers. That said, there are more loans out there if you don’t see the one you like.

First Time Home Buyer Mortgage Calculator

Mortgage rates are constantly changing, which makes calculating your future mortgage a bit more challenging. Fortunately, there are several dependable sites that provide their own first time home buyer mortgage calculator for your convenience. Zillow, for example, has a simple, easy to use first time home buyer mortgage calculator that will help you identify your own payments. Of course, it’s worth pointing out that Zillow’s mortgage calculator (and all others) should only be used by those looking for a ballpark estimate. For a better idea of what you could expect your own mortgage to be, you should consult the bank you intend to borrow from. Only they will be able to give you the exact number you are looking for.

Key Takeaways

• The prospect of becoming a first time home buyer can be intimidating, but the right advice should make the experience a pleasurable one.
• Following the right first time home buyer tips can mean the difference between a great experience and a bad one.
• Buying a home has as much to do with avoiding mistakes as it does with following the right advice.

A conventional mortgage is reserved for today’s “best” borrowers, or those traditional lending institutions view as less of a risk to default on a loan. It is worth noting, however, that conventional mortgages exist to help their originators as much as the borrowers, if not more so. You see, conventional mortgages are inherently risky for banks to approve, so it only makes sense that they’d only accept the best applicants, but what’s that mean for everyone else? It is about time you learn the ins and outs of a conventional mortgage, and exactly what it means for you.

The Basics: What Is A Conventional Mortgage?

Conventional mortgages are typically reserved for those borrowers with more than encouraging financial profiles. They are best suited for prospective borrowers with no blemishes on their credit reports and scores of at least 680. In other words, conventional mortgages are intended to service the least risky population of borrowers, and for good reason: conventional mortgages actually pose the most risk to lenders, as they aren’t backed by the government. Unlike their Federal Housing Administration (FHA) loan counterparts, conventional mortgages aren’t insured by the government, so lenders offering conventional mortgages are less inclined to take unnecessary risks.

In addition to being reserved for those borrowers that represent the least risk, conventional mortgages will typically require a down payment somewhere in the neighborhood of three to 20% depending on the product being offered. It is worth noting, however, that those who don’t put down at least 20% will be required to pay what those in the business call private mortgage insurance (PMI). In attempt to make their investment even less risky, PMI will help offset the risk of so-called “safe” borrowers from defaulting on their loans.

To be perfectly clear, a conventional mortgage is a risky move for most lenders because their “products” are not insured by the government. However, the risk of offering a loan that isn’t backed by the government is offset by strict underwriting; namely, higher credit scores, larger down payments and private mortgage insurance. Therefore, if you hope to qualify for a conventional mortgage, you should expect to be required to meet relatively strict requirements.

Define Conventional

As we already alluded to, a conventional mortgage is a home loan that’s not insured by the government. Whereas FHA loans are insured by the federal government, conventional mortgages are not. More specifically, “the federal government insures loans for FHA-approved lenders in order to reduce their risk of loss if a borrower defaults on their mortgage payments,” according to Zillow. Conventional mortgages, on the other hand, are not awarded the same luxury. Banks offering conventional mortgages are going to take more precautions when lending to borrowers since their loans aren’t insured.

A conventional mortgage is essentially a way for banks to offset the risk associated with offering loans that aren’t backed by the government. “Conventional mortgages present the most risk for lenders since they are not insured by the federal government,” according to Investopedia. As a result, conventional mortgages are reserved for today’s best borrowers; those least likely to default on their mortgages.

Conventional Mortgage Calculator

While a conventional mortgage calculator can certainly be useful to those with all the required information, those without the supplemental data will find their calculations falling short. In other words, a good conventional mortgage calculator will account for everything from private mortgage insurance, property taxes, homeowners insurance, HOA dues, and other costs. Only once you have every variable will a mortgage calculation be helpful. That said, The Mortgage Reports has a conventional mortgage calculator that will account for everything you need to know now, and in the future.

Conventional Mortgage Down Payment

Due, in large part, to their “riskier” nature, conventional mortgages typically coincide with a larger down payment. It is not uncommon for the down payment on a conventional mortgage to rest somewhere between three and 20%

It is worth noting, however, that the downpayment for a conventional mortgage comes with a significant caveat: whereas most people put down anywhere between three and 20%, those that don’t manage to put down at least 20% will be required to pay private mortgage insurance. That’s because the less a borrower puts down, the more of a risk they pose to the lender. Therefore, PMI is levied on anyone that doesn’t put down enough money at the start of a mortgage. The private mortgage insurance, as you may have already guessed, is intended to lessen the risk of borrowers that may default. Borrowers required to pay private mortgage insurance will continue to do so until their loan-to-value ratio reaches 80%.

Conventional Loan Rates

Conventional loan rates are far from universal, and tend to vary depending on three important factors: the amount put down, the loan originator and the market’s current conditions. According to Bankrate, however, “the average 30-year fixed mortgage rate is 4.70%, up from 4.64% last week. 15-year fixed mortgage rates increased to 4.16% from 4.07% this week.”

A conventional mortgage is a great option for borrowers with a pristine credit history, but there’s a lot more to these traditional loans than most people realize. Traditional loans, most notably, represent a risk to lenders, but they target the best borrowers to offset said risks. Perhaps even more importantly, those that qualify for them stand to receive great terms.

Key Takeaways

• A conventional mortgage represents a risk for traditional lenders, but they target the best borrowers to reduce the chance of default.
• A traditional mortgage, or conventional mortgage as it’s often called, isn’t insured by the government.
• Conventional mortgage rates will vary depending on the amount put down, the loan originator and the market’s current conditions.

The concept of the FHA loan was introduced in the 1930s when the United States was reeling from what would turn out to be the worst depression in American history. As the stock market crashed and the economy took a turn for the worst, defaults and foreclosures ran rampant. In response, the powers that be (the federal government) saw fit to provide lenders with peace of mind by insuring subsequent home loans. The resulting Federal Housing Administration (FHA) loans did their best to reduce lender risk and stimulate a struggling housing market, and their legacy lives on today. Not surprisingly, FHA loans are designed to promote homeownership amidst low-to-moderate income borrowers. And while we may not be facing the same financial crisis we were in the 30s, or even just a decade ago, borrowers should take solace in the fact that FHA loans are here to help.

What Is An FHA Loan?

The name says it all: an FHA loan is a mortgage issued by federally qualified lenders. Perhaps even more importantly, however, FHA loans are subsequently backed by the department of Housing and Urban Development (HUD). In other words, FHA loans are insured by the government, which begs the question: What does that really mean? Why is the federal government intent on insuring more loans?

​According to Investopedia, “the government created federally insured loans that gave mortgage lenders peace of mind, reduced lender risk and stimulated the housing market.” More specifically, government backed loans awarded lenders the ability to underwrite more mortgages for buyers that were previously ignored by lenders because of the risk of default they posed. You see, once the government decided to insure FHA loans, low-to-moderate income borrowers (or those with a less than attractive financial profile) could finally get the loan they needed to buy a home without making a significant down payment. More people could transition to homeownership and, in turn, help stimulate the economy.

It is important to note, however, that FHA loans are insured for the lender, not the borrower. That’s an important distinction to make, as the FHA will assume responsibility for protecting the lender if the borrower neglects to keep their mortgage payments current. In the event a borrower does default on their mortgage, they are still at risk of a foreclosure, but the lender can rest assured, knowing full-well that the loan was insured by the government.

FHA Loan Requirements

• A credit score of at least 500.
• Those with a credit score between 500-579 can obtain an FHA loan with a down payment of 10%.
• Those with a credit score higher than 580 can get an FHA loan with as little as 3.5% down.
• Borrowers should be able to prove a steady employment history for at least two years.
• Borrowers need to prove they are a legal citizen, of the legal age to sign a mortgage and provide a valid Social Security Number.
• At the very least, borrowers will need to put down 3.5% at the time of signing.
• FHA loans can only be used by those looking for a primary residency.
• The subject property must be appraised by an FHA-approved appraiser.
• The borrower must exhibit a front-end-ratio of less than 31% of their gross income, typically.
• The borrower must exhibit a back-end-ratio of less than 343% of their gross income, typically.
• While there are exceptions, borrowers should be at least two years removed from bankruptcy and on their way to establishing good credit.
• While there are exceptions, borrowers should be at least three years removed from foreclosure and on their way to establishing good credit.
• The property itself should meet FHA standards at the appraisal. FHA loans will only be given to properties that meet FHA guidelines.

FHA loan requirements stray from those of their conventional counterparts because they are insured by the federal government. As a result, FHA loans a specifically tailored to help those with less than perfect financial profiles. That said, FHA loan requirements are not as strict as those that have become synonymous with conventional loans. Credit scores, for example, don’t need to be perfect to qualify for an FHA loan, but instead can be as low as 500. Of course, a borrower’s credit score will impact the amount they are expected to “put down” at the signing. Those with a credit score between 500-579 can obtain an FHA loan with a down payment of 10%. Those with a slightly better score (at least 580) could get away with a down payment as little as 3.5%. In addition to credit scores and down payments, FHA loan borrowers will need to demonstrate some level of financial competency; namely, that they are at least a couple of years removed from bankruptcy and three years removed from any foreclosures.

These aren’t the only requirements to meet if you want to qualify for an FHA loan. For more information, please refer to the U.S. Department of Housing and Urban Development’s page on FHA loans.

How To Apply For An FHA Loan

1. Determine whether or not you qualify: Though they have become known for their “looser” requirements, there are still several requirements you must meet if you hope to obtain an FHA loan. Before you move forward, make sure you qualify for an FHA loan. Most importantly, make sure you have the credit score necessary to proceed.
2. Find an FHA-approved mortgage broker: Only FHA-approved lenders can offer FHA loans, so make sure you find a qualified lender. The FHA Lender finder available on the United States Department of Housing and Urban Development website is a good place to start.
3. Save up enough for a down payment: Every FHA loan will require a down payment. While your credit score will determine how much you need to put down, you’ll be expected to pay the down payment up front, so be ready. Now is the time you may want to reference a dependable FHA loan calculator, as to gain a better idea of what to expect.
4. Compile necessary documentation: Since you are looking to take out a rather sizable loan, you will need to provide the lender with your employment status, savings, credit and personal information. These are formalities they will use to decide your creditworthiness, so make sure you can find the necessary documentation. The documentation you will need is extensive and includes, but isn’t limited to job records, tax documents, and personal information.
5. Fill out the loan application: Of course, to qualify for a loan you must fill out an application, and FHA loans are no exception. Fill out the application correctly, and leave nothing to chance. Fill it in to the best of your knowledge, and look up any information you may not be absolutely certain of.
6. Have the property appraised by an FHA-approved appraiser: In order to qualify for an FHA loan, you must have the subject property appraised by an FHA-approved appraiser. If for nothing else, the home must qualify just as much as you should. More specifically, however, the home needs to comply with health and safety regulations.
7. Sign the papers at the closing table: Provided everything falls into place, you are ready to sign the closing papers. Expect additional fees at the closing table and come prepared to pay them immediately.​

​What First-Time Buyers Need To Know About Their FHA Loan

• The down payment is directly correlated to your credit score: First-time buyers need to understand that how much they put down at the time of signing an FHA loan will depend on their own credit score. Not surprisingly, the better your credit score, the less you’ll have to put down, as you are considered less of a risk. Those with a credit score between 500-579 can obtain an FHA loan with a down payment of 10%. However, those with slightly better scores (580 or more) may only have to put down as little as 3.5% at the time of signing. That said, it will pay to have your credit in check prior to applying for an FHA loan.
• FHA loans are meant to stimulate the housing market: As I already alluded to, FHA loans were introduced into the marketplace to stimulate the housing industry. The government decided to insure loans so that select lenders would be willing to take a shot on “riskier” lenders. And, as a result, more people would be able to fulfill their dream of homeownership. That said, FHA loans are not too good to be true, but rather a bet that more people can afford homes if they aren’t impeded by huge down payment requirements. What’s more, a lot of buyers may not realize they qualify. At the very least, you will never know until you check, so don’t write of FHA loans as an option for your first purchase.
• The government insures the lender, not the borrower: A government backed loan may sound reassuring to many first-time homebuyers, and it should, but not for the reason many assume. You see, the government isn’t insuring the loan on the borrower’s behalf, but instead they are giving the lender peace of mind. As a result, the lender doesn’t need to worry as much about a default. The borrower, on the other hand, still needs to remain current on their mortgage payments, as government insurance won’t do them any good in the face of default. That said, don’t assume a government backed loan offers you any sort of safety net; the insurance will make it easier to get a loan, but it won’t do anything for you in the event of a default.

​An FHA loan is the perfect solution for buyers with less than perfect financial profiles. More importantly, an FHA home loan awards prospective buyers the ability to make the transition to ownership, as they significantly lessen the burden of the dreaded down payment. That said, nobody is simply going to give you an FHA loan; you need to do the work yourself and make things happen. If you are interested in applying for an FHA loan, mind due diligence and learn everything you can about them; only then can I recommend moving forward.

Key Takeaways

• The amount you can expect to put down for an FHA loan is directly correlated to your own credit score.
• FHA loan requirements are not as strict as their conventional counterparts, but there are requirements, nonetheless.
• The FHA home loan is specifically designed to help buyers that may have difficulty qualifying for today’s conventional loans.