Buying a house? Your first home purchase can be exciting and daunting.
Figuring out what you can afford to buy and stretching your budget as far as you can is an exciting process. A loan is an option some first-time homebuyers use to buy a house they wouldn’t be able to afford.
Read on to learn about the different loans available to first-time homebuyers.
Conventional Loan
A conventional loan is one of the most popular loan types available to first-time home buyers. A private lender issues this type of loan, which is conforming or non-conforming. A conforming loan offers a lower interest rate than a non-conforming loan, making it cheaper in the long run.
Conventional loans require a minimum down payment of at least 5%, although this may be higher for a high-risk loan. Buyers also must have a credit score of at least 620 or higher to qualify for the loan. Other types of loans available to first-time home buyers depend on their situation and needs.
Home Ready Loans
Home-ready loans provide convenience, flexibility, and attractive rates for borrowers. They’re a type of mortgage-backed by the Federal Housing Administration (FHA) and the U.S. Department of Housing and Urban Development (HUD). It’s ideal for those who are just starting because they don’t have a down payment requirement or closing costs.
They also allow for closing costs, such as appraisals and title insurance, to be rolled into the loan, eliminating the need to keep track of additional costs. In addition, Home Ready loans offer lenient qualification requirements and are available to those who have not owned a home in the past three years. Other types of loans available to first-time home buyers include conventional, VA, and USDA loan products.
Each offers unique benefits, and it is important to research them to find the best solution that meets your needs.
FHA Loans
FHA loans are a type of loan available to first-time homebuyers. The Federal Housing Administration backs these loans, which are only available to qualified buyers with approved credit. There are low down payments of 3.5% and more flexibility in qualification requirements.
They also provide a higher debt-to-income ratio than most other loan programs, making it easier for many first-time buyers to qualify. They are also less expensive, with no surprise fees. Some other types of loans available to first-time homebuyers are conventional loans, USDA loans, VA loans, and certain government-sponsored programs.
The Federal Housing Administration insures these loans and has more flexible requirements than conventional loans, making them a good choice for those with less-than-perfect credit or little money saved for a down payment. However, they require mortgage insurance, which can add to your monthly payments.
VA Loans
VA loans are a type of loan available to first-time homebuyers. They designed VA loans for veterans, active-duty military members, and eligible surviving spouses. The U.S. Department of Veterans Affairs guarantees them, meaning VA loans have lower interest rates and usually no down payments.
They also have fewer restrictions than other types of loans, so they are easier to qualify for. There are still other types of loans available to first-time homebuyers. For example, Federal Housing Administration loans are a type of loan that is insured by the US government and can offer borrowers lower down payments.
The Department of Veterans Affairs guarantees these loans, which can be a great option for those who have served in the military or their spouses. They offer competitive interest rates and don’t require a down payment, making them an attractive choice for many first-time buyers. However, they are only available to eligible borrowers.
USDA Loans
USDA loans are a type of loan available to first-time home buyers in the United States. A US government department known as the US Department of Agriculture backs these loans. USDA loans offer great benefits for potential home buyers, such as low-interest rates, no down payment, and the ability to finance closing costs.
The primary benefit of a USDA loan is the ability to purchase a home without requiring a large down payment, which can be a major hindrance for many first-time homebuyers. Additionally, by allowing buyers to finance their closing costs, USDA loans can help reduce the amount of money that needs to be saved to purchase a home.
Know These Types of Loans for First-Time Homebuyers
The different types of loans available to first-time homebuyers can be overwhelming and confusing. It is important to understand the different loan types and how to structure them to meet your individual needs and goals. Do your research and speak with a finance professional to find the best home loan for you. Don’t wait, start exploring your options today!
When it comes to your financial life, especially real estate, it pays to be prepared. Take a look at some of our other blogs today to learn more.