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Which Loan Options Are Best For First Time Home Buyers

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Why Is Home Loan Insurance Important For Borrowers

Best Home Loan for First Time Buyers – FHA vs. Conventional Loan

As we already know, home loan insurance plan covers the outstanding home loan amount in a situation where the borrower fails to pay his/her debts. Such a situation may arise due to the borrowers job instability or his/her demise. You may choose a regular plan or opt for one that comes with additional features and riders more enhanced coverage. Home loan insurance is important for the borrowers as it ensures that the dependents of the borrowers dont become homeless in his/her absence or crisis situation.

Conventional Loans With Pmi

Many people believe that if they want to get a conventional loan, they need a 20% down payment. This isnt actually true. Depending on your lender, you can get a loan with as little as 3% down. The confusion comes from the private mortgage insurance requirement.

Your lender will require you to pay PMI as a condition of your loan if your down payment is less than 20% of the loan amount. PMI is a type of insurance that protects your lender if you stop making payments on your loan. Regardless of the fact that youre the one paying for it, PMI offers no benefits. As a result, most people want to cancel PMI as soon as possible. You can contact your lender and request that they cancel your PMI plan as soon as you reach 20% equity in your home.

Types Of Mortgage: Variable Or Fixed Rates

When you apply for a mortgage, you have the choice of getting either a fixed or variable interest rate. The most popular kind of mortgage is a 5-year fixed rate mortgage, which means your rate is set for the first five years of your loan.

As the name implies, fixed-rate mortgages are constant for the duration of the term. There are also variable-rate mortgages, which fluctuate with the bankâs prime rate. The advantage of a fixed-rate mortgage is that your mortgage payments wonât change even if the prime rate increases. Because of this, the interest rate on fixed-rate mortgages tend to be higher than variable-rate mortgages. With a variable-rate mortgage, your interest rate will decline if the bankâs prime rate falls. However, if the prime rate increases, so will the interest rate on your mortgage.

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Pros Of Conventional Loans

  • Can be used for a primary home, second home or investment property
  • Overall borrowing costs tend to be lower than other types of mortgages, even if interest rates are slightly higher
  • Can ask your lender to cancel private mortgage insurance once youve reached 20 percent equity, or refinance to remove it
  • Can pay as little as 3 percent down on loans backed by Fannie Mae or Freddie Mac
  • Sellers can contribute to closing costs

Us Department Of Agriculture Mortgage Loans

Whether you

A U.S. Department of Agriculture mortgage is a low-interest, no down payment loan designed for low-income homebuyers with poor credit. Similar to a VA loan, not all first-time homebuyers can qualify for this type of mortgage.

To qualify for a USDA loan, you must purchase a home in a designated coverage area supported by a Rural Development program. Monthly payments are typically restricted to a maximum of 29% of your monthly income, so this is a great option for you if you have a limited income and are looking to live in a rural or underdeveloped region.

If youre unsure on whether or not the area youre looking in qualifies for coverage, check the U.S. Department of Agriculture eligibility map.

Requirements for First-Time Homebuyers

  • No loan size maximum

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How Can Someone Decide Between A Conventional Mortgage Vs A Government

Anthony Park, author:

‘It really depends on if you qualify. If you do qualify for FHA or VA mortgages, those are no-brainers. just because the terms are so favorable. If you don’t qualify, you fall back by default onto conventional mortgages.”

“The most common government loan that’s widely available to almost everyone is the FHA loan. There’s a couple of reasons why somebody would go with FHA instead of conventional one. Their credit is a little on the crummy side, let’s say below 700. You can get conventional with down to a 620 score, but the mortgage insurance gets really expensive. FHA doesn’t discriminate no matter how perfect or crappy your credit is, the mortgage insurance is the same.”

Choosing A Mortgage Lender

One of the biggest mistakes firsttime home buyers make is not shopping around for a mortgage.

They might simply get prequalified with the bank they already use for checking and savings. Or they might get a quote and go with the first lender they speak to, assuming rates and prices are the same everywhere.

In fact, thats not true. Lenders have a lot of flexibility with the rates they offer.

For a single borrower, mortgage rates could potentially vary as much as 0.5% from one company to another.

Half a percent might sound small. But over the first three years of a $250,000 loan, that difference would save you almost $4,000.

So, make sure you get estimates from a few different lenders to find the best rate and fees before you commit to a home loan.

Alternatively, some home shoppers like to work with a mortgage broker who can offer a variety of loan products at once.

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Different Types Of Home Loans In India

With the rising real estate prices in India, a Home Loan is the only way through which most people fulfil their dream of buying a home. To better meet the needs of the borrowers, lenders in India now offer different types of Home Loans.

Purchasing a home has now become a benchmark for settling down in India. A home purchase is a dream shared by millions in the country. But the ever-increasing price of real estate has significantly increased the demand for Home Loans in the country. Below is a list of some of the most popular Home Loan options you can consider:

We Continue To Guide You

The Top Five First Time Home Buyer Loan Options

Well tell you what to have ready to help your loan closing go smoothly. Well remind you of required steps, plus well let you know what you can expect to pay in closing costs.

Whats more, you can easily manage documents and track your application with our simplified online application its available for most loans. Ask us for details.

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Firsttime Home Buyers: Where To Start

No one expects you to be an expert on the home buying process especially when youre a firsttime home buyer.

But there are huge benefits to learning just a little.

The more you know, the better off and less stressed youll be. You may even get a better deal on your new home loan.

If youre just getting started, there are a few key tips to keep in mind before diving in:

  • Contact at least three mortgage lendersto ensure youre getting the lowest rate. Many firsttime home buyers make the mistake of going with the first lender they talk to, and they miss out on thousands of dollars of savings
  • Learn about different types of home loans. While there are dozens of loan types, more than 90 percent of buyers will end up using one of four major loan programs: Conventional, FHA, VA, or USDA. Find out which loan best fits your needs there are options for low down payment, low credit score, selfemployed, large loan size, and more
  • Understand your price range and monthly payment. Calculate your mortgage payment, including principal, interest, taxes, and insurance. Understand your mortgage rate as well as your budget. This will allow you to shop for a home and a mortgage with confidence
  • Get a mortgage pre-approval before you house hunt. Preapproval from a lender verifies your home buying budget, and many sellers wont accept an offer without this verification inhand
  • Can The Government Help Me Buy A House

    For many first-time home buyers, there are some real hurdles along the way. Whether its saving for a down payment and closing costs, qualifying for a mortgage loan, or simply navigating the home buying process.

    Luckily, there are government programs both at the federal and state level that can help.

    For many, the biggest hurdle when trying to purchase their first home is coming up with the upfront costs of a down payment. While the amount needed to put down varies depending on the type of loan, it can still be a roadblock on the journey to homeownership, says Mandie Anderson, branch manager with South Carolina-based Silverton Mortgage.

    Government-backed loans are a great option for anyone who can afford a monthly payment, but wants to put less money down or has a lower credit score.

    The good news is that there are numerous government loan programs and down payment assistance options designed especially for those who need a little extra help with financing. These programs can be a solution in particular for those who can afford a monthly mortgage payment but may not have a large sum of money on hand for the down payment, Anderson explains.

    Government-backed loans are a great option for anyone who wants to put less money down or has a lower credit score, explains Jeff Gravelle, chief production officer at Newrez, a national mortgage lending and servicing organization.

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    Native American Direct Loan

    Its a government loan program for Native Americans, providing them with the best option for building, renovating, or buying homes in accredited areas. It mainly aids Native American veterans and their families. You wont have to comply with mortgage insurance requirements or pay for a downpayment, lowering the closing charges.

    You can also get multiple NADL properties, but you can only find them in particular states, so make sure the house youre planning to buy meets the requirements.

    Federal Housing Administration Mortgage Loans

    Best Loan Option for a First

    A Federal Housing Administration mortgage is a home loan that is backed by the government and easier to qualify for compared to a conventional loan. If youre a first-time homebuyer with a lower credit score and looking to contribute a smaller down payment, then this may be the home loan for you.

    FHA loans can last 15 to 30 years with a fixed interest rate, meaning you wont have to worry about a fluctuating monthly payment. These loans are also preferred by first-time homebuyers with lower incomes because they have the most flexible eligibility requirements.

    If you have a credit score over 580, then you can put down a minimum of 3.5%. But if your credit score is between 500 and 579, then youll need to have a down payment of at least 10%. Similar to a conventional loan, youll need to invest in mortgage insurance if you plan to put down less than 20%.

    Requirements for First-Time Homebuyers

    • Minimum credit score of 500
    • Debt-to-income ratio: 57% or lower
    • Down payment minimum: 3.5% to 10%
    • Loan size maximum: $822,375

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    How To Buy A House With No Money Down

    *As of July 6, 2020, Quicken Loans is no longer accepting USDA loan applications.

    Many potential homebuyers wonder how much theyll need to save in order to get a mortgage. But did you know its possible to buy a home without a down payment?

    Well take a look at some options you have when you want to buy a home without a down payment. Well also show you a few alternatives for low down payment loans as well as what you can do if you have a low credit score.

    Recap: The 9 Best Mortgage Lenders For First Time Home Buyers

    Heres a recap of the best mortgage lenders for firsttime buyers and why we chose them:

    • Bank of America Home buyer grants and unique loan options
    • Chase Home buyer grants and unique loan options
    • CMG Financial Great customer service, unique loan options
    • CrossCountry Mortgage Low interest rates, unique loan options
    • Movement Mortgage Great customer service, great online experience
    • New American Funding Low interest rates, flexible loan terms
    • Prosperity Home Mortgage Low interest rates, amazing down payment assistance on FHA loans
    • Supreme Lending Unique loan programs
    • Veterans United Great for veterans, service members

    Every mortgage lender offers different rates and programs. So get custom quotes from your top picks to find out which one has the best deal for you.

    1Average customer review scores sourced from,,, and J.D. Powers most recent Primary Mortgage Origination Satisfaction Study where available for each lender

    2 Average interest rates and loan fees based on the most recent self-reported data all lenders are required to file under the Home Mortgage Disclosure Act

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    What Are Fha Loans

    Lenders are protected by the Federal Housing Administration when they lend FHA loans to homeowners. Because these loans are backed by the FHA, you dont need a perfect credit score or a large down payment to qualify. In fact, first-time homebuyers may be able to purchase a home with a down payment of as little as 3.5 percent or no down payment at all. If you struggle with your payments, you also have the option of refinancing an FHA loan.

    Down Payment Assistance For First

    Home loan tips || 10 important facts about home loan || First time home buyers must watch

    There are thousands of DPA programs available nationwide and locally. The aid they offer comes in several different forms, including grants, loans, and credits.

    As Anderson explains:

    • With a DPA grant, money is given to the borrower that doesnt have to be paid back under the condition that they own and live in the home for a specified amount of time. This will typically be secured by a lien on the property until the conditions are met
    • Alternatively, the DPA program can be a second mortgage loan offered at a low or zero interest rate that needs to be paid back or forgiven over a certain period. This most likely will also be secured by a lien on your property

    Alternatively, certain agencies throughout specific states issue mortgage credit certificates . These can reduce the amount of federal income tax you pay, making it possible for you to save more funds for a down payment and other costs associated with a home purchase.

    Keep in mind that a tax credit is not received until you file a tax return, so be sure to consult with a tax advisor for your specific situation, adds Anderson.

    To help find DPA programs, check out these links:

    When researching financial assistance programs, carefully review the program requirements to ensure that you qualify. Also, make sure you can find an approved lender, advises Anderson.

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    Compare Firsttime Home Buyer Programs

    Minimum Down Payment
    • Conventional 97 loans 3% down

    The main takeaway here is that down payments are flexible.

    Yours should depend on your monthly income, what you currently have saved, how expensive the home is, and what your overall home buying goals are.

    Briefly, the pros and cons of bigger versus smaller down payments are:

    • Bigger down payment Lower interest rate and lower monthly payment
    • Smaller down payment Buy a home and start building equity sooner, keep more of your savings intact for emergency expenses

    Take a look at your personal finances and home buying goals to figure out the right down payment for you.

    Why do people say you need 20% down?

    Average down payments are well under 20 percent. You might wonder, then, why so many people think 20 percent down is the minimum.

    Its because 20 percent down gets you out of paying for something called mortgage insurance.

    Mortgage insurance is an extra charge on your mortgage bill, and it often costs a few hundred dollars per month.

    Understandably, most buyers would rather avoid paying for mortgage insurance if possible. Thats why some people aim for 20% down.

    But there are benefits to paying mortgage insurance if it puts you in a home sooner. Its just one more cost versus benefit to consider as you put together your home buying budget.

    Aspects To Be Considered Before Opting A Home Loan Insurance:

    The ways that you may choose to insure the home loan are mentioned below:

    • Term insurance It is purchased so that all your liabilities and debts are taken care of.
    • This insurance scheme only takes care of your home loan outstanding when you are unable to pay it off.

    Most of the home loan insurance schemes offer reducing coverage with them. The size of the coverage is linked to the home loan outstanding. Thus, the sum insured goes down when an individual repays the loan amount. However, in case of a term insurance, coverage stays the same. In case of term plans, the sum assured is received by the nominee who can make the payments to the lender or the bank for settling the loan. In case if a home loan insurance plan, the insurer directly makes the payments for the home loan outstanding to the lender for settling the loan.

    Home loan insurance can be purchased either from a general insurance company or a life insurance company. The ones that are offered by the general insurance companies need to be renewed on an annual basis. The policies offered by life insurance companies are for longer terms.

    It is of utmost importance that you ask about the riders and add-on covers. It is beneficial to get a plan that covers situations like unemployment and disability, along with death. Also check if the policy covers just natural demise or accidental demise too.


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