As a first-time home buyer, you have a few different options when it comes to financing your home. These options differ in terms of interest rates, down payments, and other factors.
Here are two financing options for first-time home buyers to consider.
Conventional Mortgage Loans
A conventional mortgage loan is a home loan that is not insured or guaranteed by the government. This type of loan is typically available with either a fixed or adjustable interest rate. A fixed-rate means that the interest rate will stay the same for the life of the loan. For example, if you have a 30-year fixed rate mortgage, your interest rate will stay the same for the next 30 years.
An adjustable rate means that the interest rate can change over time, typically in response to changes in the market. Common factors that can affect your interest rate include the prime rate and inflation.
The main benefits of a conventional mortgage loan are that the interest rates are much more flexible, especially if you go for an ARM loan. You can also put down an affordable down payment, as low as five percent in some cases.
However, one downside is that you will need to pay for private mortgage insurance (PMI) if you put down less than 20 percent for your down payment. This type of loan is considered a higher risk for lenders, so they require this insurance to protect themselves in case you default on your loan.
To qualify for a conventional mortgage loan, you will need to have a good credit score and a steady income. You will also need to prove that you have enough money saved up for a down payment.
Federal Housing Administration Loan
Unlike a conventional mortgage loan, a Federal Housing Administration (FHA) loan is insured by the government. These loans are designed to encourage home ownership, which in turn contributes to the stability of communities and strengthens the economy.
FHA loans are available through most mortgage lenders and are typically repaid over a period of 30 years. The minimum down payment for an FHA loan is 3.5%, making them a good option for buyers who may not have a lot of cash on hand.
In addition, FHA loans are typically more flexible than other types of loans when it comes to credit history and employment history. As a result, they can be a good option for buyers who may not meet the strict guidelines of some conventional loan programs.
If you're thinking about buying your first home and are contacting first time home buying services, be sure to investigate FHA loans as a potential financing option.
Share28 July 2022
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