Buying your first home is always an exciting endeavor! It is also a time of serious (long-term) decision making. A huge part of the decision-making is understanding the different types of mortgage loans for first-time home buyers, and knowing which one is right for you!
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This decision could potentially be the difference between achieving the great American dream or an American nightmare.
Unfortunately, many first-time home buyers do not take the time to do their own research when it comes to getting a mortgage loan and instead rely solely on the information they are receiving from the Lender or Real Estate Agent.
Sadly enough the Lender or Agent may not have your best interest at heart and may be looking first at their bottom line.
I would suggest if you are in the market for a new home to take some time, starting now, to do your own research, whether it’s reading books on the topic from your local library, attending home-buying seminars or just doing some research online.
Trust me when I say this will make you so much more informed and knowledgeable when you sit down with your Lender since you will know exactly what he or she is talking about and you will know the right questions to ask.
On this post, I wanted to give you a synopsis of each types of loan so you can have a head start as you begin the home-buying process. Be sure to check out each website to get further information on how each one works.
Also, keep in mind there are other types of loans out there. These that are covered in this post are the most popular. Your Lender will go over any other types that may fit your special needs. (You will also learn about them during your research).
The FHA home loan (Federal Housing Administration) is a segment of the US Department of Housing and is one of the most popular loans available, especially to first-time homebuyers.
This type of loan is a guaranteed loan backed by the federal government.
The FHA loan is most popular
for its low down payment of as little as 3.5% of the home price.
It is also one of the easiest loans to qualify for with a credit score requirement of as low as 580.
The FHA loan also does not charge you extra fees because of your low credit score, as some other loans do, and interest rates for this loan are just as competitive as other types of loans.
Visit their website here: https://www.hud.gov/buying/loans
Conventional loans have been known to be the most difficult loans to qualify for because of what is required.
Despite its reputation many borrowers still seeks out the conventional loan simple because if you are qualified then you get to avoid things like mortgage insurance when you are able to afford a 20% down payment.
This is not the case of other types of loans, where, regardless of how much you put down you will still have a mortgage insurance attach to your monthly payment.
Conventional loan is a great option for first-time homebuyers who have good credit and a substantial amount of down payment.
Lenders do set a high standard for getting qualified for the conventional loan than would typically be for the FHA loan. For example, your credit score need to be around 720 otherwise this type of loan would actually charge you extra fees and/or higher interest rate due to a lower credit score.
Most lenders also require 2 years of consistent earning streams, such as 2 years of W2 or 2 years of taxes if you’re self-employed.
The VA mortgage loan is a loan that is guaranteed by the US Department of Veterans Affair. It is however provided to you by private lenders, such as a bank or mortgage company.
As the name suggest it is only available for United States Service members, veterans and eligible surviving spouses.
This type of loan helps you to purchase your home at competitive interest rates and oftentimes does not require a down payment or mortgage insurance.
There are many other home loan benefits available under this type of loan. Certain requirements would need to be met, such as length of service or duty status so your Lender would go over all of this with you to see what services are available to you.
Again, as you do your own research you too will find out all the benefits you have earned and which one you can take advantage of.
Learn more here: https://benefits.va.gov/benefits/
The USDA loan is also backed by the US Department of Agriculture. This type of loan is difficult to be approved for since there are many stipulations and requirements that go into the USDA loan.
Your household size as well as household income plays a huge role in being qualified for this type of loan.
The property that you are looking to purchase has to also meet certain requirements such as it being in a eligible rural area.
These USDA loans are handled by special representative throughout the States as well as throughout each county so you would need to search their website and find the local representatives assigned to your area.
Learn more info here: tps://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do
If you would like to take a visual look at the types of mortgage loans and an example of the break down of numbers then here is a great video showing just that:
So there you have it. Some of the most popular types of mortgage loans for first-time home buyers.
Be sure to study them all so you will know which one would work best for you.
The best thing that you can do for yourself and your family is to ask the right questions that will serve you well as you move towards your own American dream.
You can only do this when you have knowledge of the information available out there to you and you take the time to seek it out.
As you do your own
Get access to legal counsel so you can
Happy house hunting!
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