Let's face it: Most people don't have the means to buy a home with just cash. For that reason, a mortgage lender can make it possible for a first-time buyer to snag the property they've always wanted. Once your finances are in order and you know exactly where you want to live, it's time to proceed with getting pre-approved for a mortgage loan.
Here's everything you need to know about finding the best mortgage as a first-time buyer. You'll learn about the different loans available to you (a 30-year deal might not be necessary after all), exactly what you need to qualify for a good mortgage, and how to choose the best lender to achieve your goal of becoming a homeowner.
Types of Mortgage Loans to Consider:
Conventional mortgage loan: This popular loan option is available through a private lender (such as a bank) rather than being guaranteed or insured by the federal government. The terms of fixed-rate loans can span from 10 to 30 years, meaning that your interest rate will remain the same for the life of the loan you choose. If you think your family will eventually move to a new home in several years, a 10-year mortgage could be the most fitting option for your lifestyle. In addition to fixed-rate conventional loans, there are adjustable-rate conventional loans (ARMs). The rates for ARM loans adjust every year, following a fixed-rate period that can be three, five, seven, or 10 years.
FHA loan: FHA loans are insured by the Federal Housing Administration. They're ideal for first-time buyers who have low credit scores (at least in the 600s) and can only manage a small down payment (three-and-a-half percent). While the FHA insures this type of loan, keep in mind that the first-time buyer is responsible for mortgage insurance.
VA loan: With VA loans, which are guaranteed by the U.S. Department of Veteran Affairs, down payments and insurance aren't required for veterans or those serving in the military. Plus, loan rates are competitive, which helps first-time buyers save more money. To qualify, you must be a previous or current member of the U.S. Armed Forces or National Guard.
USDA loan: Rural homebuyers have access to USDA loans that are backed by the U.S. Department of Agriculture. Since they are meant for low-income families, down payments aren't required and the interest rates are fairly low.
Tips to Consider:
Be clear on your financial status. Choosing the right mortgage is like shopping for anything else. It's best to get pre-approved before house-hunting so that potential sellers know you're serious about making an offer. Keep in mind that your current income and credit history will inform the mortgage loan that is best for you. Opt for a reputable mortgage lender that will make the home buying process go as smoothly as possible. Take your time to weigh the pros and cons of all available mortgage options and compare interest rates, so that you know what's manageable considering your financial situation.
Research first-time homebuyer programs. There are many first-time homebuyer programs on both the local and national level that offer down payment and closing cost assistance as well as mortgages with reasonable rates. Requirements vary depending on where you live, but carving out time to research them can result in huge savings.
Finding the perfect mortgage is far from easy, but with patience and enough research under your belt, you can be one step closer to making your dream of becoming a homeowner a reality.
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