Hi, Penny — I recently moved to the U.S., and I know that establishing a credit history is important, but I don’t know how to get started. How do I build credit from scratch?

— New to the States

Hi, New to the States!

In the U.S., credit scores are used frequently to make decisions about loans, credit cards, apartments, insurance, cellphone contracts and utility accounts. Some employers even check your credit before offering you a job. With so much at stake, it can feel a little overwhelming, right?

The good news is there are many ways to build credit. But before you start your credit-building journey, there are a few things to do first. Let’s look at what to consider before you start building credit and how you can do it when you’re ready.

What do you need to start building credit in the U.S.?

Before trying to establish credit in the U.S., there are a few things you may need to do to get ready.

• Social Security or individual taxpayer identification number — You might have heard that you need a Social Security number to get credit. Having one may make it easier. But it’s possible to get credit without a Social Security number. If you don’t qualify for one, some credit card issuers accept individual taxpayer identification numbers. You can apply for an ITIN with the IRS.
• Source of income — Lenders want to know you have enough money to repay them. You need to show you have a reliable source of income to make your payment each month.
• Bank account — Depending on the type of credit you apply for, you might need a checking or savings account to show you have the resources to make your payments. Even if it’s not a requirement, having a bank account makes it easier to deposit your paychecks and set up automatic payments.

Ways you can build credit in the U.S.

There are multiple ways to build credit from scratch. Here are some to consider.

Apply for a secured credit card

Secured credit cards require a security deposit that’s usually equal to your credit line. If you don’t pay your bill, the credit card company can keep the deposit as payment. Because they’re backed by a cash deposit, secured cards are typically easier to qualify for than unsecured cards.

Take out a credit-builder loan

A credit-builder loan works like a personal loan in reverse. Instead of giving you the loan proceeds upfront, the lender puts the money in an account. You make loan payments each month and when you’ve paid the full loan amount, the lender releases the funds to you.

Become an authorized user

A family member or trusted friend can add you to their credit card account as an authorized user. Many companies report the primary cardholder’s activity to the credit bureaus in the authorized user’s name. Some issuers don’t, so it’s important to check. If the account holder makes their payments on time, this strategy can give your scores a boost, but the opposite is also true.

Have your rent reported

Some property management companies report rent payments to the credit bureaus. If your landlord doesn’t, you can sign up with a rent payment service like RentTrack that reports it for you. You may need to pay a fee for the service.

Work with a local organization

It can be challenging to get accurate financial information if you’re new to the U.S. Local agencies may be able to help you find reliable financial information in your community, including how to build credit.

Seek out financial institutions that take alternative information

If you don’t qualify for a Social Security number, look for financial institutions that accept ITINs or other forms of identification such as a passport, national ID card or other government-issued ID.

How to stay on track while you build credit

Building a strong credit history doesn’t have to be difficult, but it takes consistent on-time payments, and it won’t happen overnight. You typically need about six months of payment history to have enough information to generate a score, but it varies depending on the scoring model.

It’s important to pay your bills on time. Late payments hurt scores and can derail your hard work. Set up reminders or schedule automatic payments, so you don’t forget.

Once you have a credit report, it’s important to monitor it to make sure the information is accurate. If you find incorrect information in your credit report, dispute it right away so that the credit bureau can investigate. One last word of advice as you begin your new life in the United States: It’s an unfortunate reality, but there are people who try to take advantage of newcomers. Watch out for scammers who may try to trick you into paying for free services or steal your personal information.

Hi, Penny: I’ve been slowly paying off my student loans, but it feels as if it will be decades before I get out from under my debt. How can I pay off my student loans fast?

— Strapped by Student Loan Debt

Hey, Strapped by Student Loan Debt,

First of all, know that you’re not alone in feeling overwhelmed! In fact, student loan debt is something that affects millions of graduates. And while it’s easy to feel as if all your hard work to pay off your student loans isn’t making a dent — especially with costly interest charges added each month — there are a few strategies you can use to pay off your debt faster. Let’s take a closer look at how you can manage your debt, pay off your student loans faster and maybe even relieve a little bit of stress.

Understand how your student loan debt fits in with your overall budget

Having a handle on your monthly expenses might help you determine how much you can afford to put toward paying off your student debt. A good place to start is by making a budget. Take the time to consider all of your monthly expenses and income as well as your short- and long-term financial goals.

By looking at your full financial picture, you’ll be in a better position to understand how much money you can put toward paying down your student loan debt. For example, if you have stable employment and just a few monthly expenses, you may be able to afford putting extra cash toward your student loan payments. But if you’re saving up for something big, like buying a home, or you’re working on paying down other higher interest debts, you might not have any extra funds at the moment.

Make a plan to tackle your student loan debt

Though your student loans follow a repayment plan, you can still pay off the debt quicker. Here are some of the ways you can speed up the loan repayment process to get out from under your student loans faster.

If you can afford it, make extra payments or pay more than the minimum

By making multiple payments each month, more money goes toward paying off your student loan principal. And this means you could not only pay down your loan a bit faster by shortening the overall repayment period, but you could pay less interest over time.

Consider student loan refinancing

Depending on your credit history and financial situation, you may qualify for lower interest rates by refinancing your student loans. If you qualify, you could have the option to shorten your loan term, which can help you pay off your student loans faster.

But keep in mind that if you’re refinancing a federal student loan, it will become a private loan. This means that you’ll no longer have access to federal student loan protections such as loan forgiveness programs, repayment plans, loan deferment or forbearance after you refinance.

Consolidate your student loan debt

If you have several federal student loans, you may want to consider student loan consolidation. This doesn’t necessarily help you pay them off faster, but it can simplify your loan repayment into a single new loan payment each month. You’ll also get a new interest rate and loan term with the loan consolidation. Having one payment may be easier to remember every month, and it allows you to focus all of your repayment efforts in one spot.

Before consolidating your student loans, you should consider some of the disadvantages. For example, consolidating typically lengthens your loan term. While this gives you more time to pay off your loan, it could increase the overall amount of interest you’ll have to pay. You may also lose features like interest rate discounts, principal rebates or certain loan cancellation benefits.

Switch your repayment plan

When you take out a federal student loan, the Department of Education assigns you a standard repayment plan that comes with a 10-year loan term. But if this doesn’t work for your financial situation, you may be able to switch to another federal loan repayment plan based on your income and family size.

Work on a creating a budget

Making a budget that fits your lifestyle can help you avoid taking on extra debt and might be able to help you better prepare for unexpected expenses. Take time to weigh the pros and cons, and look at your budget before entering another situation where you are taking on debt for a significant period. For more information on the different types of debt and payoff strategies, check out our complete guide to debt.

Hi Penny — With student loans, a car loan and credit cards, I have a lot of bills every month, and it feels as if I’m getting nowhere with my monthly payments. How can I pay off debt fast? —Drowning in Debt

Hi Drowning in Debt,

If your debt is making you feel overwhelmed, you have a lot of company! Credit card debt, in particular, can be frustrating because it might start small, but compounding interest can increase your balances and stretch out your payoff timeline. After a while, it can seem as if you’re barely making any headway.

Thinking about how you can pay off your debt more quickly is a great first step. When you speed up your payoff timeline — saving money on interest charges and making more progress reducing your balances — it’ll help reduce your stress. It all starts with understanding your budget and creating a debt payoff plan that fits your lifestyle.

Develop a realistic budget

Before you come up with a game plan, you’ll need to develop a budget that accounts for all the money you have coming in and going out. Doing this can help you better understand if you have enough income to cover all your expenses and — if so — how much you have left to put toward paying down debt. You might also decide you want to put a portion of your extra money into an emergency savings fund, making it less likely you’ll have to use a credit card (and rack up more debt) the next time you face unexpected costs.

As you do this, be real with yourself. Does the budget allow you to live within your means while you pay down your debt — or will you be stretching yourself so thin that you have to eat packaged ramen noodles every night? Creating an overly aggressive paydown plan might be motivating at first but could quickly become so discouraging that you’ll want to scrap it altogether.

Developing a budget can also help you identify any areas where you could cut back and use that money toward paying down debt instead. This is especially important if you don’t have much leftover cash — or any — after you pay bills. Maybe you can dine out less, cut your cable or some of your streaming services, or cancel your gym membership and sweat at home until your debt is paid off.

Make a plan to pay down your debt

Once you’ve developed your budget and have a sense of how much you can put toward your debt each month, it’s time to choose a debt payoff method.

Debt avalanche method

With the debt avalanche method, you make all your monthly debt payments, and use any extra money you have to pay off the debt with the highest interest rate first. This can help you save the most money.

Debt snowball method

Alternatively, you might use the debt snowball method if you need some motivation upfront. With this method, you use your extra money to pay off the smallest balance first, then move on to the next smallest debt. Keep in mind that while you will see progress more quickly with the snowball method, you could end up paying more in interest because you’re not focusing on your larger, often more expensive debt.

With both of these repayment strategies, you’ll pay more than the minimum payment toward the balance that you’re targeting, thus speeding up your debt payoff timeline.

Negotiate with your creditor

Lowering the interest rate on your accounts can also help you zero out your debt more quickly because, with a lower interest rate, more of your payment will go toward the principal balance. Call your credit card issuer and ask if it will reduce your annual percentage rate, or APR, on your credit card. You can also ask the lender to waive the annual fee, if there is one.

Your creditors may or may not do this for you, but the odds might be better if you’re a customer in good standing.

Debt consolidation

A debt consolidation loan or a balance transfer credit card might also help you save money in interest if you qualify for a lower interest rate than you’re paying on your current debt. Just watch out for any loan or balance transfer fees that could eat into your savings. 

Student loan refinance or repayment plan

As for your student loans, you might be able to refinance the debt to a shorter term or lower interest rate. This may help you pay off the debt faster and save on the total cost of borrowing.

But think twice before refinancing federal loans to private ones. You may lose important borrower benefits, such as an option for income-based repayment, in the process. If you’re carrying high balances in federal student debt, you might consider changing your payment plan so that it better fits your budget. Then you can direct some of that money toward your other debt.

Keep yourself on the path to debt payoff

As you pay down your debt, consider setting milestones along the way to keep you motivated. Use a portion of any windfalls, like a tax refund or work bonus, to treat yourself every time you hit one of these goals. For instance, you might go out with friends or buy yourself a new book once you pay off a certain amount of your balance. This can also help you avoid debt fatigue — those feelings of resentment and apathy you might develop as you work hard to pay down your debt and temporarily cut back on certain things that you enjoy. Best of luck to you!

Hi, Penny: I need to make a big purchase, but I don’t have the cash on hand to pay for it. Should I use one of those buy-now, pay-later apps I’m seeing everywhere?

—Strapped for Cash

Hey, Strapped for Cash,

Using a buy-now, pay-later app to fund a major purchase can be tempting.

But buy-now, pay-later options can come with high interest rates, late fees and other penalties or costs — so holding off may be better for your long-term financial health, especially if the purchase is a “nice-to-have” versus “need-to-have” item.

Let’s check out the benefits and potential drawbacks of using buy-now, pay-later apps.

How buy-now, pay-later apps work

Buy-now, pay-later apps work just like they sound. You use the app to make a purchase now and pay for it in installments — rather than all at once — without having to take out a traditional personal loan. They’re commonly used for online purchases, but some brick-and-mortar retailers allow the option as well.

A common payment schedule for a buy-now, pay-later service is four equal payments over six weeks. You make your first payment at checkout or when your order ships, and then one payment every two weeks after that. At the end of six weeks, you make your last payment and your purchase is paid for in full.

Some apps offer longer-term financing options for larger purchases. Terms vary, but generally range from three to 36 months.

Benefits of using buy-now, pay-later apps

If you need to make a purchase that just can’t wait, there are some advantages to using a buy-now, pay-later app.

• Real time decision — You’ll find out at checkout if you’re approved to use the app to make a purchase — no need to wait for a lending decision.
• No interest, in many cases — With a number of these apps, like Afterpay and Quadpay, you won’t pay interest on your purchase.
• Credit check not necessarily required — The hard credit checks that some lenders do when you apply for a loan can ding your credit scores. But some buy-now, pay-later apps don’t check your credit at all, and others use a soft credit check that won’t affect your credit scores.
• Rewards and promotional offers — Some apps have rewards programs and offer special discounts on items you purchase using the app.

Drawbacks of using buy-now, pay-later apps

An app that loans money with no interest may seem like a no-brainer if you’re in a pinch, but there are a few things to watch out for.

• Short repayment timeline — If you want to avoid paying interest when using these apps, you typically need to pay for the entire purchase within six weeks, which might be tough for large purchases.
• High interest rates — Some apps, like Affirm and Klarna, offer longer repayment terms — but it may cost you. These payment options charge interest, and rates for longer-term financing can be higher than the average annual percentage rate, or APR, for credit cards or personal loans.
• Fees — If you make a late payment or it gets returned, you could be charged a fee.
• Might negatively affect your credit — Some apps report late or missed payments to the credit bureaus, which could negatively affect your credit scores. According to a Credit Karma/Qualtrics survey, 72% of respondents who missed a payment while using a buy-now, pay-later app experienced a drop in their credit scores.

Potential alternatives to using a buy-now, pay-later app

If you think you’ll need longer-term financing, here are some other options to consider.

• Small personal loan — A small personal loan may offer longer and more-flexible repayment terms than buy-now, pay-later apps. The average interest rate on a 24-month personal loan was 9.46% in the first quarter of 2021, according to the Federal Reserve. That’s lower than Klarna’s flat rate of 19.99%, and the upper end of Affirm’s 0% to 30% APR range. If you can qualify for a lower rate on a personal loan, it might be a better option.
• Credit card — A credit card with a low or 0% introductory APR is another alternative to consider. If you can pay the balance in full before the promotional period ends, you’ll avoid paying interest altogether. But keep in mind that opening a new account will generate a hard credit inquiry, which may lower your credit scores by a few points.

Ultimately, whether a buy-now, pay-later app is right for you depends on whether you can take advantage of interest-free payments and pay off your balance within a month or so. If you need more time to pay off your purchase, you may want to go another route that charges a lower interest rate.

Hi Penny — I recently got married and am wondering if my spouse and I should open a joint bank account. Is it a good idea for our two accounts to become one? — Blissfully Wed

Hi, Blissfully Wed!

Congratulations on your recent nuptials! Getting married is exciting, though it can come with some big decisions. One of them, as you’ve learned, is whether to combine your finances if you haven’t already.

I’m hoping you and your new spouse have already had a few conversations about money (if not, there’s no better time than now). Topics might include your spending habits, what your budget will look like as a couple, your shared goals, who will be responsible for actually paying the bills each month and how much debt (or savings) each of you brings into the marriage.

A joint bank account can help make managing your money and paying bills as a couple easier, but there are some things to consider first.

How does a joint bank account work?

Joint bank accounts allow multiple account holders to deposit and withdraw money, as well as the ability to make changes to the account.

Joint bank account owners can each set up transfers, track account activity and (if applicable) write checks. They are also responsible for any fees that may be charged.

Although a joint bank account can be a great option for married couples, you don’t have to be married to have one. In fact, you can open a joint bank account with anyone you share finances with, whether it’s someone you’re dating, a roommate or even a parent or sibling.

Benefits of a joint bank account

Opening a joint bank account with your other half can give you both convenience and transparency.

Joint bank accounts can make paying household bills easier by allowing you both to track spending, savings and general cash flow. With a shared account, you each know where the money is going each month and have a pretty good idea of your overall financial picture as a family.

You’ll both also have access to household funds, rather than needing to transfer cash between your separate accounts.

Lastly, if you bank at an FDIC– or NCUA-insured institution, each account holder is covered up to the maximum limit of $250,000. This means that if you and your spouse have $500,000 in a joint account, each of you would be covered individually up to $250,000, making the entire balance insured.

Drawbacks of a joint bank account

Before you head to the bank to open a joint account, there are a few things to consider.

When you open a joint account with someone else, you’re sharing complete access to the funds in that account. If one person wants to spend a large sum of money or even transfer the entire balance out, they can. One account holder may even be able to close the account entirely without the other owner’s permission. Let that sink in for a moment.

If you have any hesitation about putting your money into someone else’s hands — even your spouse’s — you and your spouse may decide that the best solution is a blended approach. This way, you each keep separate accounts but put money for shared household expenses into a joint checking account each month. The bills — such as your mortgage or rent payment, utilities and groceries — can then get paid with those funds.

The account can also be used for joint purchases like items for your home. Alternatively, you might open a joint savings account for shared savings, like an emergency or vacation fund.

Whatever money is left over stays in your own individual accounts. This might include designated “fun money” for each of you or funds for individual expenses such as your own car loan or student loans.

Another thing to keep in mind is account limits. Depending on the financial institution — and even the specific type of account you choose — you will typically face dollar limits on ATM withdrawals, ACH transfers or other transactions for each day or each month. If you and your partner are both using the account frequently, this could potentially put you over that limit.

Be sure to look at how you each spend throughout the month in order to pick the right joint bank account.

How to open a joint bank account

Most financial institutions offer joint bank accounts, so you can open an account at most banks and credit unions.

The process is generally simple, and you can open an account either online or in person at most banks. You may need to provide your ID or driver’s license and personal information such as your name, Social Security number, address, date of birth and email address. You’ll also need to decide how to fund the account initially.

If desired, you can each set up direct deposits and/or automatic savings contributions. You can also schedule automatic bill payments once your account is up and running, so that you can stay on top of your joint finances and bills.

Decide if a joint bank account is right for you

The decision to open a joint account is a personal one that may work for you and your spouse — or may not (and that’s OK). Talk with your partner about the implications of sharing a joint checking, savings or even joint credit card account, and make sure you’re both in agreement on how the funds will and will not be used.

Hi Penny — now that I’m fully COVID-19 vaccinated, I can’t wait to take that dream vacation I’ve been putting off. What are my options for vacation financing? I want to splurge, but the past year was tough and I want to make sure I’m responsible. — Vaxxed & Ready to Travel

Hey Vaxxed & Ready to Travel,

Congrats on getting your shot(s)! I can feel your excitement to get back out there and I know that travel attractions will be thrilled to welcome you, especially after the staggering losses they’ve experienced amid the pandemic.

Before planning any travel, make sure to check the latest guidelines from the U.S. Centers for Disease Control and Prevention to help reduce the chances of disruption and unforeseen costs.

With health logistics out of the way, let’s talk about the financial considerations you’ll want to think through before you hit “book” and make your dream vacation a reality.

Think twice before getting vacation financing

It may seem harmless to borrow money for a trip, especially after you’ve been cooped up for so long. But if the pandemic taught us anything, it’s that life can change in an instant. So even if you’ve done the math and you’ve got the budget to pay for your dream vacation, keep in mind these potential pitfalls that can make things more challenging for you.

For starters, using a credit card to finance your trip might expose you to high interest rates — my friends at the Federal Reserve peg the average credit card interest rate at 14.75% as of the first quarter of 2021. What’s more, credit cards don’t have set repayment terms like installment loans. So if you make just the minimum payment, it can cost you more and keep you in debt longer.

If you decide to take out a personal loan instead, the terms could be somewhat better. The average interest rate on a two-year personal loan was 9.46% in the first quarter of 2021, according to the Federal Reserve. With a personal loan, you can manage a predetermined repayment period. But if you have plans to borrow money to travel more than once over the next couple of years, that balance can quickly snowball as you take on more debt before you pay off what you already owe.

Even if you can afford to repay the debt, a personal loan or credit card payment could make it difficult for you to work toward other financial goals. For example, you may want to build a robust emergency fund, pay off debt, or save for retirement or a down payment for a home. Consider how a monthly payment could affect your overall financial health in the short and long term.

Consider the costs of using ‘buy now, pay later’ for vacation financing

“Buy now, pay later” services are a popular way to shop for goods and services, but they can be just as costly as traditional vacation financing options — or even more so. For example, Affirm offers financing with select travel websites, with some interest rates as low as 0%. But on the high end, you could end up with a 30% APR.

Other “buy now, pay later” platforms like PayPal’s Pay in 4, Sezzle and Afterpay may allow you to spread out the cost of travel with certain merchants over time without interest. But you typically need to repay the full amount over the course of six weeks. And if you can afford to do that, it may be best to just wait until you have enough cash in hand to make your purchase.

Some credit card companies like offer programs in which you can put certain purchases on a set repayment plan with fixed monthly payments. While you won’t be charged interest, you might have to pay a monthly fee that can vary based on a number of factors.

You’ll also want to think about travel costs beyond the flight, hotel and rental car. For example, it’s a good idea to buy some travel insurance, especially because the pandemic is ongoing and travel restrictions can change. Additionally, the cost of food, event tickets, safety protocols and other travel expenses can add up fast.

How to keep that dream vacation from turning into a debt nightmare

Ultimately, it’s up to you to decide whether to finance your vacation. But if you’re aiming to safely enjoy yourself without racking up a pile of debt, here are some pro tips to consider.

• Set a savings goal: Think about when you want to travel and figure out how much it will cost. Then set a savings goal for that amount and divide it by the number of months you have until your travel date. For example, if the trip is eight months from now and will cost $3,000, you’ll need to save $375 per month until then. And remember, you’ll likely need the money before your travel dates because it’s best to book flights and hotels in advance.
• If you’re going to use credit, apply for a card with travel rewards: Many travel credit cards offer big introductory bonuses that you may be able to use to help pay for your travel — some are worth hundreds of dollars. In most cases, you’ll need to meet a spending requirement to earn the bonus, so you’ll want to plan in advance. But with some cards you can book your trip even before you earn the bonus, then once you get the miles, use them to get a statement credit for your previous travel purchases.
• Be flexible with your plans: As more people get vaccinated, more activities seem to open up. To say the last year or so has been rough is the understatement of the century. So I wouldn’t blame you if you wanted to travel sooner rather than later. That said, it’s a good idea to be flexible with your travel dates. Depending on where you want to go, some months are cheaper for travel than others. And when it comes to flights and hotels, prices can change frequently, so if you wait, you could find a deal.
• Look for other ways to make some money: If you’re worried about being able to travel on your current salary and you have some free time, consider looking for opportunities to make some extra cash that you can put toward your vacation fund. Make sure you’re comfortable with your choices, though. For example, rideshare services like Uber and Lyft may be worth considering. But if you’re not sure about being in close quarters with strangers right now, you might consider restaurant delivery instead. Consider this and other ways to make money to achieve your goal.

Good luck with your travel plans! I hope this helps you find the right balance between your trip aspirations and your financial well-being.

Hi Penny — I’m ready to buy a house. What do I need to know about how to qualify as a first-time homeowner?  —Excited Future Homeowner

Hey Excited Future Homeowner,

I’m thrilled that you’re ready to own a home! A solid understanding of things like typical homebuyer requirements and how to get preapproved as a first-time homebuyer can help you with the process — and with making decisions that fit your budget and lifestyle.

All of this info may be overwhelming at first, but you’ll start feeling more confident pretty quickly once you get informed and do a little homework.

Who qualifies as a first-time homebuyer

Did you know that you may be considered a first-time homebuyer even if you’ve bought a home before? Surprising, right?

Here’s how it works: A first-time homebuyer also includes someone who hasn’t owned a home in three years or more. The Federal Housing Administration, or FHA, says you may also qualify as a first-time homebuyer if you’re …

• A single parent who only owned a home with a former spouse while you were married.
• Someone who hasn’t been in the workforce for a while but has cared for your home or family and only owned a home with a spouse.
• Someone who has only owned a mobile home or another type of property that wasn’t attached to a permanent foundation.
• Someone who has only owned a property that didn’t meet state, local or model building codes and couldn’t be brought up to code for less than the cost of building a new property.

Typical first-time homebuyer requirements

You probably already know that moving is considered one of the most stressful things you can do. If you’re a first-time homebuyer, a big contributor to that stress may be all the requirements you need to meet for your loan.

These requirements depend a lot on the mortgage and home loan program you choose. Here’s a quick overview of credit score, down payment and other requirements for different types of mortgages.

• Conventional loans: Conventional mortgages — those backed by a private lender like a bank versus a government program — may be a good option if you have a strong credit history. These loans tend to have lower interest rates. But you may need to pay private mortgage insurance, or PMI, if you put down less than 20%. To qualify for a conforming loan — a type of conventional loan that’s backed by Fannie Mae and Freddie Mac — you’ll generally need a minimum credit score of 620; a debt-to-income ratio, or DTI, that doesn’t exceed 50%; and a minimum amount of cash on hand. You’ll also be limited in how much you can borrow — the limit for a one-unit property in 2021 is $548,250 in most locations. But the good news is that you may qualify for a down payment as low as 3%.  
• FHA loans: FHA loans are federally insured and may make sense if you don’t have the best credit. You may qualify with a FICO® score as low as 500 as long as you have a 10% down payment. If your credit score is 580 or higher, you may be able to put as little as 3.5% down. You’ll also need a debt-to-income ratio below 43%, steady income and proof of employment. It’s also worth noting that you’ll need to pay an annual mortgage insurance premium if you’re approved for the FHA loan. In 2021, the FHA loan limit is $356,362 for a one-unit property, so you may not qualify if you plan to buy a more expensive home.
• USDA loans: A USDA loan is also backed by the government and can help you buy a home in an eligible rural area. You likely won’t need to make a down payment, but you’ll need to meet the income requirements for the area where you wish to buy a home.
• VA loans: If you’re a veteran or service member, you may be able to qualify for a Department of Veterans Affairs-insured VA loan, even if you have poor credit. VA loans don’t require you to pay PMI, and as long as the home’s purchase price isn’t higher than its appraised value, you won’t be required to make a down payment.

How to get preapproved as a first-time homebuyer

Getting preapproved can help you in your home-buying journey in a few ways. A mortgage preapproval letter from a lender states that you’re conditionally approved for a specific loan amount. With a preapproval, you can find out how much home you can afford, position yourself as a serious buyer to sellers and choose the best interest rate and terms for your situation. Just keep in mind that preapproval isn’t a guaranteed loan offer.

Consider applying for preapproval when you’re ready to get serious about buying a house. Some preapproval letters expire within 30 to 60 days. To get preapproved, a lender will need to check your credit, employment history, income and financial assets and may ask for documents such as pay stubs or tax returns. It’s a good idea to get preapproved with multiple lenders within a 14-day period. While the time frame can differ, many credit-scoring models consider multiple inquiries within a two-week window as just one hard credit inquiry.  

Research first-time homebuyer programs

You can look to a bunch of resources to get help with buying a home. The government (federal and state) and even some lenders want to get in on the action of helping first-time buyers like you. These programs come with their own specific requirements and offer benefits like competitive interest rates, assistance with a down payment and closing costs, discounts and tax credits.

For example, the Department of Housing and Urban Development’s Good Neighbor Next Door program offers law enforcement officers, teachers, firefighters and emergency medical technicians a discount of up to 50% off the price of a home in an eligible area. In exchange, they must agree to live in the home as their principal residence for at least three years.

Take the time to research these programs before you purchase a home so that you don’t miss out on any assistance available to you. If you need help, reach out to a loan officer or housing counselor. They can help you identify available programs and guide you through the home-buying process.