Buying a home for the first time should involve up-front research and getting a crash course in real estate, finance, and mortgage lending all at once. Of course, the home buying process is rarely a topic covered in school. The result is that prospective buyer knowledge is usually limited to random articles, coffee cooler talk, and advertisements. A Virginia first time home buyer is no different. Although, maybe add research the local Virginia market to the list.
Our goal is to provide buyers with helpful information early in the home buying process. Specifically, this article discusses the basic requirements for first time home buyers. Also, we offer several links to other informative articles on our site which will help expand your knowledge.
Virginia First Time Home Buyer Credit Requirements
There are some basic requirements for a buyer to obtain approval for a home loan. The major areas include credit, debts, income, assets, and collateral. In many of our credit-related articles, it is easy to see the importance of a credit score. Underwriting approvals and interest rates depend heavily on credit scores. That is why it is key to have an understanding of how scoring works. Which is much more than just paying bills on time. 30% of your credit score is determined by a term called credit utilization. It is a revolving account’s (credit card or line of credit) balance compared to the credit limit as a percentage.
Knowing how credit works could save you money. Plus, it may mean the difference between approval and denial. Generally, a 620 credit score is standard for many programs. Although, it is possible to buy with a lower score. Chances of approval and loan options increase with higher credit scores.
Understanding How Debt Affects Buying a Home
As a Virginia first time home buyer, it is essential to know how lenders look at debt. Debt to income ratio is a common term used in the lending process. It compares a buyer’s total monthly debt payments to the gross monthly income as a percentage. The lower the percentage, the higher the chance of loan approval.
Conversely, a high debt to income ratio increases the chance of loan denial. As mentioned earlier, higher credit scores may offset a high debt ratio resulting in a possible approval.
First Time Buyer Student Loan Debt
Typical first time home buyer debts include credit cards, auto loans, and student loan debt. Over the last decade, the amount owed for a college education has spiraled out of control. Recently ballooning well over $1.5 Trillion in the U.S. While buying a home, each mortgage loan type treats student loan payment options in its own way. For instance, home loan qualification may use the actual income-based repayment (IBR) amount which may be as low as $0 per month. Where some loans may require using 1% of the outstanding student loan balance as part of mortgage qualification.
First Time Home Buyer Credit Card Debt
Not only does credit card debt carry high-interest rates, but it also plays a huge role in a credit score. As mentioned above, it accounts for 30% of a credit score. A lot more once you factor in the payment history. So, credit card balances can hurt in many ways. Which is why it is best to keep balances low. Even better, pay them off every month.
Car Payment Affect on a Home Purchase
Another hurdle buyers face is the increasing cost of vehicles. With these rising costs, it means higher payments. It is very common for home buyers to have $500, $600, or even higher car payments. Many times, there are two car payments in this range. You can only imagine what that may do to the debt to income ratio. Of course, it affects a personal budget as well.
Debt to Income Ratio Goals for Buyers
A Virginia first time home buyer should have a goal of a 41% or less total debt to income ratio. Additionally, staying under 29% for the total housing payment divided by the gross monthly income helps. By staying in the lower range, chances of loan approval increase, and it is easier on the budget. Many home loan programs will allow higher debt to income ratios with enough compensating factors.
Maximum Mortgage Debt to Income Ratio
- USDA Rural Development – 45% and possibly a little over
- FHA – 55% or more
- VA – 55% or more
- Conventional (Fannie Mae & Freddie Mac) – 50%
Virginia First Time Home Buyer Income Requirements
The old days where most buyers have been on the same job forever have gone. Today’s employment landscape is different as far as employment type, time on the job, and type of pay. How each employment type is treated depends on several factors including loan type and the overall borrower makeup. Below are common areas related to income.
Length of Time on the Job
Did you know that it is possible to get approved for a home loan right out of school? It sure is! Mortgage loans will usually count income on a brand new job as long as it is a base income. For instance, a salary or full-time hourly wage may be counted right away. It is even possible for buyer approval with zero income. In these cases, a co-signor is needed, and the co-signor does not have to occupy the home. Now, fluctuating income such as commission, bonus, contractor, and self-employed require a history. The standard time required for these income types is a two year history. Although, there are opportunities for exceptions to just one year.
Other than salaried or full-time hourly pay, income is one of the most complicated areas in mortgage lending. Income types include commission, housing allowances, retirement, disability, military, part-time, over time, multiple jobs, and self-employment. We encourage you to click on the links which apply to your income type. These will provide further detail into how lenders treat each. Plus, we provide solutions to each type for a Virginia first time home buyer.
Virginia First Time Home Buyer Asset Requirements
Younger buyers just starting out usually do not have sizable assets. Yet, some first time home buyers are diligent savers or wait a while before buying. Most of the time, first time home buyers in Virginia and everywhere else are looking for no down payment, low down payment, or down payment assistance. Trying to buy a home with as little out of pocket as possible.
Fortunately, there are many programs available for first time home buyers that meet the low cash to close goal.
Low Down Payment Mortgages
- VA home loans – No money down
- FHA loans – 3.5% down payment
- Fannie Mae HomeReady – 3% down payment
- Freddie Mac Home Possible – 3% down payment
- USDA Rural Development – No money down
- HUD $100 Down – $100 down payment for HUD owned foreclosures
- Down Payment Assistance – Provides funds to use for down payment or closing costs
- VHDA – Down Payment Assistance and Grants
- Renovation Loans – Buy a home in need of work to make it your own
Virginia First Time Home Buyer Property Types
In the mortgage world, the collateral means the home and land. Property types vary, and it is important to understand how each is treated. The most popular property type is what lenders call a detached single family home. Meaning a stand-alone home which is not attached to another and that it is “stick built.” Otherwise, not a manufactured or modular home. Yet, there are many other property types which buyers may consider. These include condos, manufactured, multi-unit, townhouse, and modular.
Buying a Condo
The low maintenance living which condos offer can be very alluring, but there are key areas to understand when it comes to buying a condo. First, you are buying the interior of the condo unit and are a part owner of the common areas. There is no land included in a condo purchase. When it comes to condos, lending agencies treat these differently. In addition to the normal appraisal process, the condominium complex must be on the VA approved condo list, FHA approved condo list, or meet conforming condo requirements. Although, there are also programs for condos that do not meet these requirements.
Buying a Townhouse
Townhouses are treated just like a regular home. Most of the time, there are association dues which cover common areas and usually insurance. Although townhomes and condos are usually lumped together, they are totally different. Many listings state “condo/townhouse” as the property type, but it is so important to understand the difference. Check out this article which explains the difference between the two.
Manufactured vs. Modular Homes
Prefab homes offer a more affordable price compared to traditional stick built homes. They provide a lower cost option for a Virginia first time home buyer. Generally, these homes are either manufactured homes or modular homes. Manufactured homes include single wides, double wides, and triple wides. These include a steel frame underneath and are treated differently than stick built homes. Yet, many programs still allow manufactured homes such as VA loans and FHA loans, but there are foundation requirements for manufactured homes.
Modular homes are broken into two categories: Off-frame modular and on-frame modular. On-frame modular homes have a steel frame underneath like a manufactured home. Some programs such as USDA will not lend on these. Although, we can provide on frame modular financing through VA or FHA loans. Off-frame modular homes are treated like traditional stick built homes. So, these modular homes may be financed with all loan types. Check out a detailed “On-frame vs. off-frame modular home” comparison here.
Buying a Multi-Unit Home as a First Time Buyer
Sometimes a buyer looks to purchase a home to live in and get an investment property in one. In the right situation, it could be a great way to buy a home and start towards a wealth building plan. When buying a 2 – 4 unit dwelling, the extra unit(s) may be used as a rental. Even though there are rental units, the property as a whole would be treated as a primary residence.
OVM Financial Serves Virginia
Talking about Virginia buyers is close to our heart because our story started in coastal Virginia, and we continue to thrive throughout our state. We are proud to provide a wide array of mortgage products to serve Virginia residents. Additionally, we are one of the top VA lenders in Virginia, and we have several offices surrounding our local military bases. So, no matter if looking to buy in the mountains, foothills, central, northern, or coastal areas of Virginia, OVM Financial is here for you.