Best Loan Options When Buying a House for the First Time

A mortgage loan is a standard route when you plan to buy a house for the first time. A house property doesn’t come cheap after all, and it is one of the biggest purchases that you’ll make in a lifetime. The problem is, there are so many mortgage loan deals today and it might be tricky to understand all of them.

Today, we’ll tell you the best options available to first-time home buyers. Most of these mortgages have favorable deals that are easy to handle and they come with smaller down payments and interest rates too.

Now, what are the best mortgage offers a first-time home buyer should consider? Talking with your buyer’s agent can also help after reading through this list.

Mortgage Loans to Consider When Buying a House for the First Time

1. Federal Housing Administration (FHA) Loan

FHA loan is the top mortgage option when you want to buy a house for the first time. That is because of its great terms and conditions that other loans cannot offer, such as low-interest rates, affordable closing costs, lower than normal down payment requirements and no PMI fees. Also, you only need to have 580 credit score or higher to get the best deal.

Moreover, FHA has a great reputation with home sellers and their real estate agents. Home sellers, realtors and lenders know that FHA quickly steps in when a buyer cannot pay the mortgage, which alleviates risk. In other words, it’s easier to make an offer when you’re pre-approved for an FHA loan.

It’s also possible to take advantage of FHA Section 203(k) as well.

What is FHA Section 203(k)?

This is an add-on to the FHA loan that is intended for covering home improvement costs, and is perfect if you plan to buy a fixer-upper property.

2. Standard Mortgage Loans

Standard mortgages are the most popular choice for home buyers. These are home loan packages from private lenders that are funded with the payments of borrowers.

Also, they may come with adjustable or fixed interest rates. Fixed interest rates stay the same throughout the life of a loan, whereas adjustable interests rise and drop.

Keep in mind that if you can’t afford a 20% down payment, a lender will require that you pay Private Mortgage Insurance, which protects them in the instance you default on the loan. This is an extra cost that will last until you accumulate 20% equity.

3. US Department of Agriculture (USDA) Loan

The USDA loan is a package offer from the US Department of Agriculture for those who want to buy properties in rural areas. It features fixed interest rates and even gives you a chance to enjoy zero down payment.

To qualify, you need to choose an area with 35,000 people or less in population. There are also income limitations and your credit score needs to be 600 or higher.

4. VA Loans

This is the best choice for veterans, active military personnel, and surviving spouses who want to buy a house. The VA loan includes zero down payments, low interest and is free from PMI fees. Moreover, you can contact Veteran Affairs when you’re having difficulties paying the mortgage and they can help you negotiate with the lender.

Also, this is how you can get the Native American Veteran Direct Loan, if applicable.

What is Native American Veteran Direct Loan?

This loan is only for Native American Veterans to buy a home in federal trust areas. It has almost similar perks to regular VA loans, but it also lets a person borrow up to the current loan limit of FannieMae and FreddieMac in most places.

 

5. Energy Efficient Mortgage (EEM)

This is the loan you need when planning to improve the energy efficiency of your property. Think of improving your HVAC system, boosting your insulation system, installing double-pane windows, and more. You can add the EEM loan to your FHA or VA loan.

6. Fannie Mae and Freddie Mac Loans

Fannie Mae and Freddie Mac are mortgage companies run by the federal government. They focus on helping middle to low-income earners who want to buy a house. You can find a lender that offers loans from these companies and enjoy their perks, such as low down payment and low-interest rates.

Fannie Mae has another loan option if you’re interested in foreclosed properties, too.

What is the “Home Path Ready Buyer Program” from Fannie Mae?

This is a special loan offer for people who want to buy a foreclosed home that includes the above mentioned perks, plus 3% cash assistance for closing costs.

If you’re interested in finding a foreclosed home, talk with your realtor.

7. Good Neighbor Next Door Mortgage

This mortgage plan is offered by the US Department of Housing and Urban Development (HUD). It is available for workers in the public service, such as policemen, firefighters, emergency medical technicians, and many others. If you qualify, you can buy a home in under served areas for half of its selling price. Note, however, that you must live in such property for at least 36 months after buying.

8. Local Mortgage Programs

Mortgage programs from the federal government are great, but local programs are available too.

Ask your real estate agent for help discovering local mortgage programs, as they likely work with a variety of lenders.

 

How to Assess Your Personal Situation before Securing a Loan

As you can see, there are many mortgage options when you plan to buy a house for the first time, but reviewing your personal situation will also help you decide how to move forward.

1. Get a Good View Over Your Finances

Buying a house isn’t cheap, and you must be honest about how much you can comfortably spend. You don’t want to risk financial or legal problems later on.

Start by calculating your annual income to see if you fall on the low, middle, or high-income bracket. Then think about how stable you current job is. Lastly, get a credit report to know your credit score. If your credit score is around 500 points or lower, you will need to raise it before considering a home purchase.

2. Improve Your Credit Score

Ideally, you should have a 580 credit score or more when you plan to buy a home for the first time. This is to make it easier for you to apply for loans and get the best deals. Think of enjoying a low down payment, low-interest rates, and no PMI fees.

To make this possible, pay as much debt as you can before you want to buy. That includes your car loans, student loans, and even payday loans, among others. Then, avoid engaging in any loans or debts at least six months before your hunt for a mortgage lender.

3. Shop Around for a Mortgage Lender and Program

Now that you’re in the best position to find a good mortgage loan, you can begin shopping around. You don’t have to do this alone, however. Your real estate agent will likely have worked with a lot of lenders and use their connections to get you a great loan option.

4. Talk with Your Real Estate Agent

A professional agent has all the information regarding your local real estate market. This includes vital information about mortgages too. Tell them all the details about your situation and they can tell you the best mortgage options easily.

 

Pick the Best Mortgage when You Buy a House for the First Time Today!

All of the mortgage programs above are great for first-time homebuyers. As long as you prepare your finances and credit score ahead of time, you should have no problem securing the right loan for you.

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