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What is the best mortgage for a first-time homebuyer? Feature Image
Posted on February 2, 2021 6 minute read

What is the best mortgage for a first-time homebuyer?

What's in this article?

More Options than Just a Traditional Mortgage
Check for Local First-Time Homebuyer Programs
Keep Doing Your Research

As a first time home-buyer, you probably have mixed feelings.

You may be feeling overwhelmed and confused about mortgage terminology and all of the different loan options. However, you are probably feeling excited as well. Purchasing a home for the first time is a significant milestone and one you should feel proud of. 

We can help you understand where to start by explaining the different types of mortgages, so that you can move forward with the best option for you.

More Options than Just a Traditional Mortgage

You may have heard that mortgages require large down payments, high income, or perfect credit scores. However, there are various loan programs that each offer unique savings, eased requirements, and other opportunities to help you afford a home.

Here are some of the most common first time home-buyer loans and programs that may be available to you: 

  • FHA loan: An excellent program for those with lower credit scores and those who need a smaller down payment.
  • VA loan: This loan program provides exclusive benefits for those who have served or are serving in the military. Surviving spouses may also be eligible.
  • Fannie Mae and Freddie Mac: These are conventional-type loans that require you to put down 3 to 5%, depending on certain eligibility, but provide other benefits with higher down payments. These are a little more challenging to obtain than the previous two loans but the stricter requirements have corresponding benefits to borrowers. 

Continue reading to learn more about these specific loan programs that are great for those buying a house for the first time.

FHA Loan 

An FHA loan, also known as a Federal Housing Administration loan, is excellent for first-time home-buyers for many reasons. With an FHA loan, you are typically only required to make a down payment of 3.5% and can have a lower income and credit score. You also may not have to pay for closing costs, since FHA allows the seller to contribute up to 6% of the home value for closing costs. This makes it easier to qualify for than other loans. 

The Federal Housing Administration is not a lender, so you would not borrow directly from them. The FHA is an insurer, where the government backs your loan, which is why this type of loan can be more affordable and ideal for a first time homebuyer when you borrow from an FHA-approved lender such as Homefinity. 

With an FHA loan, you will have to pay the added cost of a mortgage insurance premium for your loan duration. This is to protect the loan if you become unable to make your home payments. 

VA Loan

The U.S. Department of Veterans Affairs guarantees a VA loan. Specifically, for active service members, veterans, and qualifying surviving spouses. This loan can be appealing to many buying a house for the first time because it is generous and requires very little from the homebuyer. 

For instance, you will not be required to make a down payment as long as you have full VA entitlement. There may also be no closing costs or fees and will be no upfront or monthly mortgage insurance payment. 

A down payment is required if the borrower does not have full VA entitlement or when the loan amount exceeds the VA county limits. VA loans are subject to individual VA Entitlement amounts and eligibility, qualifying factors such as income and credit guidelines, and property limits.

Homefinity is not affiliated with any government agencies. These materials are not from VA, HUD or FHA, and were not approved by VA, HUD or FHA, or any other government agency.

Fannie Mae

Fannie Mae, known as the Federal National Mortgage Association, is not a lender. However, they can guarantee your loan by providing the funds to banks and other lenders, such as Homefinity. 

A lender such as Homefinity will collect your application and information, as well as manage the underwriting. Then when it is time to close, Fannie Mae purchases the loan from them. 

Your approval for this type of loan will depend on several factors, including your credit score, debt-to-income ratio*, and down payment amount.

*Debt-To-Income (DTI) ratio is monthly debt/expenses divided by gross monthly income.  

Freddie Mac

Freddie Mac is another mortgage corporation that you may be familiar with. It is also known as the Federal Home Loan Mortgage Corporation. 

This loan type is similar to Fannie Mae and is sometimes referred to as the little brother of Fannie Mae. However, while they both buy mortgages to make home loans possible, Freddie Mac typically purchases loans from only smaller banks. 

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Check for Local First-Time Homebuyer Programs

While the previous loan programs can be perfect for a first-time homebuyer, it is also wise to look into local assistance programs. You may be able to save on closing costs and qualify for a down payment assistance* program. 

Depending on the state you live in, some states even offer tax credits for buying a home. 

When buying a house for the first time, you will want to not only learn about the different loan types available to you but also learn about any resources out there that may help you get the best deal that will help you to afford your home going forward.

*Eligibility subject to program stipulations, qualifying factors, applicable income and debt-to-income (DTI) restrictions, and property limits. 

Keep Doing Your Research

Buying a new home is a journey and accomplishment that you will remember for years to come. As you gain familiarity with the different types of mortgages you may qualify for, you can also gain more confidence in taking steps to purchase your first home. 

There’s a perfect solution out there for you, so don’t stop at the first rejection or compromised acceptance. Work with a loan officer for help. The professional and dedicated loan officers at Homefinity can work with you to determine which loan type best suits you and your needs. Call us with your questions, and to start the process of buying your first home.

Image by Stephanie Pratt from Pixabay

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