How is a first time home buyer qualified? Does it go off of income? Thank you
A first time home buyer is qualified for mortgage financing based on several criteria, the same as any other buyer would need to qualify.
A buyer ( or borrower ) needs to demonstrate a sufficient ability and willingness to repay the loan they are requesting.
Most loan programs and lenders follow fairly standardized underwriting guidelines on almost all lending products. Rules may vary slightly from lender to lender & product to prduct, but the general theme should be pretty constant.
Some factors that will be considered are: Credit score, and recent credit history ( most important being the preceeding 24 month history ) Income vs debt load, & equity, or investment in the subject property, and reserves.
Someone's credit history can be used to judge a willingness to repay. If you have had delinquent tradelines recently, then this is not as favorable as someone who can demonstrate that they have successfully proven to manage the credit they already have, & that they are likely to continue this behavior. Someone who has had some blemishes or late payments, etc, doe not have as much strength. Fico scores have made it easier in recent years to quickly determine a borrowers recent credit history .
Income is important, because without it, how will the loan be repaid? In today's lending environment, borrowers are being asked to fully document all sources of income, rather than simply entering a number on an application without proof.
Down payment, or equity is a factor that allows for an underwriter to feel more secure that since there is an investment in the subject property, a borrower is perhaps less likely to walk away, & default than someone with little to no personal investment.
Reserves provide evidence of a borrower's ability to make it through any potential challenges by showing they have sufficient assets to weather a potential financial crisis.
Often, we find borrowers may be deficient in one area, but strong in others, & this is taken into consideration when underwriting a loan application for approval. So if your credit score is not the best, & you have little in way of down payment, but have very low debt ratio & a few months of reserves, you may still be a good candidate for a loan. A good loan officer will be able to counsel you on what you may need to do to become ready to buy a home. Asking questions like this is an excellent way to begin the process!