First-time home buyers must meet minimum requirements regarding down payment, credit scores and debt-to-income ratio. Applications from first-time buyers are closely scrutinized because the prospective buyers may be taking on the biggest financial obligation of their lives, and lenders want to make sure that the buyers' credit and financial backgrounds indicate that they can handle the responsibility. Many first-time buyers turn to loans insured by the Federal Housing Administration (FHA) because of the agency's flexible lending guidelines.
Generally, people buying a home for the first time must have a a credit score of 620 or higher for loan approval, with scores of 750 or higher needed for the lowest interest rates. However, it is possible to gain a mortgage with much lower scores. The FHA, which is the largest insurer of home mortgages in the world, will guarantee home loans for first-time buyers with scores as low as 500.
A recession and housing bust starting around 2007 resulted in tighter lending standards in the United States, including loans for first-time buyers. Before the bust, 100-percent financing was widely available. By July 2010, the market was flooded with foreclosures from people who bought houses they could not afford. That prompted most lenders to again require down payments, usually between 10 to 20 percent. However, FHA-backed loans were still available with as little as 3.5 percent down.
Employment and Income
First-time buyers must show a stable employment history and enough household income to cover the anticipated mortgage payments and existing debts and expenses. Generally, lenders prefer that applicants be employed by the same company for at least two years before applying for a mortgage loan. According to the website Bankrate, total monthly debt obligations generally should not exceed 36 percent of gross monthly income. Also, the mortgage payment, including property taxes, should not exceed 28 percent of the gross monthly income.