Being a first-time home buyer can feel exciting and scary. There’s a lot you don’t know, and one of those things is which loan type to choose. The following will help you figure this out.
FHA Loans
FHA loans are one of the most popular types of loans. A lot of people misunderstand these loans when they see that they are guaranteed. This doesn’t mean you can’t be denied a loan. It means the government is going to pay the entity that approves your request.
The chance of getting approved is high. There are a lot of perks for first-time buyers. For one, if you choose this loan, the minimum down payment is only 3.5 percent. You’ll also get some low interest rates compared to other options. Credit score requirements are the lowest compared to other loan options, but this part depends on your specific situation.
Conventional 97 Loan
Another option some first-time buyers choose is the conventional 97 loan. The loan gives first-time buyers a chance to put down a low down payment. All you need to come up with is three percent of the entire amount you are borrowing, which is doable. It should be pointed out that if you choose this kind of loan you’ll need to keep annual mortgage insurance.
That’s going to be an additional expense, but you can get rid of it if you earn enough equity though this will take some time. You’ll love finding out that you don’t need to worry about any upfront insurance fees. One point against this loan is that your credit score does need to be at least 620, so keep that number in mind before you apply.
HomeReady or Home Possible Loans
Fannie Mae HomeReady and Freddie Mac Home Possible loans are options you should consider. Both are considered conventional, except they were made to help folks get their houses sooner. One of the biggest obstacles home seekers face is various upfront fees. Sometimes, these costs can be excessive.
The good thing is both loans only ask you to put down about three percent, which isn’t too bad in comparison. You will need mortgage insurance, but if you get enough equity, you can cancel just like the conventional loan. If you are going to be moving in with a roommate, then this person’s income could be used to help you get this loan. Your credit score needs to be 620 and nothing less, so work on that before applying.
USDA Loans
USDA loans are a good option for first-time home seekers as well. These loans are offered by the US Department of Agriculture. You should know they are only offered to folks who are thinking of purchasing a home in rural areas.
This is a big decision to make since living in rural areas does present its own set of unique challenges, like commuting to get a few groceries, but it’s a good option. A big perk of choosing this kind of loan is that you aren’t required to deal with a down payment. This alone is enough for most folks to feel overjoyed. Your interest rates are going to be pretty low, and you get to enjoy the cheapest mortgage insurance cost.
VA Loans
If you or your spouse is a military member or a veteran, then you could choose a VA loan. This is the best type of loan for first-time homebuyers. There are a few perks worth keeping in mind, like how you won’t have to pay a down payment to get approved.
There’s no need to worry about purchasing a mortgage insurance policy, which is more money in your pocket. The interest rates are very low, and your credit score doesn’t have to be perfect. VA loans usually go through even if your credit score is relatively low. You should also know that your closing costs are going to be kept down to a minimum.
These are just some ideas to get you started in the right direction. Go over your choices and figure out which one works best for your needs.