Residential information can be overwhelming and it can be difficult to determine what is best for your personal and financial situation.
Location, price, and style, among many other factors, will all be details to prioritize in your search. One factor to consider immediately is what type of mortgage options are available and which choice is right for you.
In this article, we will walk you through the various types of mortgages that are optimal for first-time home buyers.
Consider Your Down Payment
Before diving into the available mortgage options, it’ll help to understand your current financial situation, such as if you have savings set aside for a down payment. If you’ve been saving for a house for some time, you may have a larger amount to put down.
If you’re just starting to save, your timeline for buying a home may be longer. Either way, understanding your down payment will help steer your decision on what type of mortgage is best for you.
It is also tremendously valuable to work on improving your credit score before making a home purchase. Have a look at nine key reasons why an increased credit score can be a significant help.
An FHA loan, which stands for Federal Housing Administration loan, is backed by the government. It’s an ideal option for a buyer who may have a lower credit score. The appeal of an FHA loan is that it requires a significantly less down payment amount.
With a down payment of 3.5%, an FHA loan can make it possible for you to purchase a home without having saved up for years. If you don’t have a stellar financial past, such as filing for bankruptcy, that won’t eliminate you from qualifying.
When purchasing a home, the down payment and mortgage payment are not the only costs to consider. Closing costs, Realtor fees, and hiring a real estate attorney are all additional expenses you will have upfront. With an FHA loan, you can roll your closing costs into your loan, which can help get you into your new home sooner.
When you are purchasing a fixer-upper home, an FHA 203k rehab loan is an excellent choice. It also has a low down payment requirement of only 3.5%. Condemned properties and abandoned homes are two types of properties that would work well with this type of loan.
30-Year Fixed Mortgage
Another popular mortgage choice to consider is a 30-year fixed mortgage. When buying your first home, if you plan to stay there for a while, this type of mortgage is a beneficial option because you’ll have a lower monthly payment each month. This will allow you to pay off your mortgage over an extended period of time.
Lenders will consider your credit score, debt-to-income ratio, and the down payment amount you’re able to make. With a fixed interest rate, the amount you pay will never go up. This is an advantage because you won't have to worry about extra costs and can create peace of mind knowing what you’ll pay each month.
Some first-timers are now considering a 40-year mortgage as well with interest rates having gone up so much over the last year.
15-Year Fixed Mortgage
A few additional factors can make a 15-year fixed mortgage an appealing option. The first being you want to pay off your mortgage as quickly as possible. With this shorter term loan, you can have your home paid off in 15 years.
With a quicker pay off, you pay less in interest for the overall life of your loan. You’ll have a higher monthly payment, this can mean paying less overall. Before choosing this type of mortgage, make sure to take a look at your monthly expenses to confirm you can afford the higher payment.
Lastly, a mortgage option available to those currently serving, who have served, or for surviving spouses, is a VA home loan. A VA loan is backed by the government but still offered through private lenders. It has additional benefits and advantages in comparison to traditional types of loans.
With a Veteran Loan you can save in multiple ways. For starters, a VA loan doesn’t require a down payment, so you can get into a home quicker without needing a large amount of savings. Also with a VA loan, you don’t have the additional expense of private mortgage insurance.
Additionally, the approval odds are higher with a VA loan, allowing more flexibility in the requirements for approval.
When buying your first home you’ll want to consider both your current and future lifestyle choices. This will help a first time home buyer match up with the right type of mortgage. A few questions to ask yourself include, how long do you plan to stay in the home? Do you want a new home or a fixer-upper? Are you aiming to live debt free by a certain age? Do you want to retire early? Finding answers to these questions will allow you to figure out what type of home and mortgage are right for you.
A mortgage is a large investment so when you are looking to buy your first home take the time to research the best option for your current financial situation and your future fiscal outlook. Once you find your first time property make sure you take the time to enjoy this achievement and utilize this checklist to help you start your journey as a homeowner.
The type of mortgage you decide on using for your first home purchase is an essential decision. It is essential to go over the pros and cons of each type of mortgage. A professional mortgage broker could be of great assistance is helping to make the right decision.
About the author: The above article on what type of mortgage is best for first time buyers was written by a Huliq contributor who specializes in valuable mortgage and general real estate guidance.