Are You A First Time Home Buyer? Read This Before You Finance!

Tuesday, August 6th, 2019
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The Different Types of Home Loans For First Time Buyers

Home ownership is a big deal. Not only is buying a home a huge commitment, there is also the daunting task of financing a home loan. When you understand your home financing options and what your circumstances are, you can choose the loan that will work best for you.

Before diving into some of the different types of home loans for first time buyers, think about your current circumstances and needs. How big will the house need to be? Have you already found a house? How long do you plan on living in the home? What is your credit score, and (if you are married) that of your spouse? The list goes on.

As you read about the different types of home loans to choose from, you’ll soon be able to get an idea of which loan can work for your circumstances. The following is a look at the options for first time home buyers.

Fixed-rate mortgage loans

Fixed-rate home loans are the most common type of home loan available. This is a traditional home loan and it is the financing option that affords the most stability in the long run. Your monthly payments would be a set amount, unaffected by fluctuating interest rates. The loan itself is financed at a fixed interest rate for the life of the loan, which is usually 15 or 30 years.

  • 15-year fixed-rate loans: You’ll have a higher mortgage payment but lower interest rates. This loan term allows you to build equity quicker, pay off the mortgage faster, and save quite a bit (usually tens of thousands worth) in interest rates.
  • 30-year fixed-rate loans: This is the loan with that will give you the lowest monthly payments and allows you to qualify for a higher loan amount, making this the most popular option for financing a home. The drawback to the low monthly payments is the higher interest rates; you’ll pay far more in interest over 30 years than you would over 15 years.

Fixed-rate loans are the best option if you plan to live in the home for an extended amount of time (or at least for most of the life of the loan).

Adjustable-rate mortgage loans

Adjustable rate home loans start with interest rates lower than those you would get with fixed-rate loans, but only for a short period of time. After a period of time, your interest rates will adjust to match the current interest rate. This adjustment can mean higher payments or lower payments.

This type of loan is a good option if you have a lower credit score or only plan to live in the home for a short period of time.

Government-Insured loans

These loans are subsidized by the federal government. What this means is that a mortgage lender is protected against payment defaults, allowing the lender to offer lower interest rates for potential borrowers. The purpose of government-backed loans is to assist lower income households and first-time buyers in becoming homeowners.

There are several different first time home loan options available under the government-backed loan program, one of them being the FHA loan.

Federal Housing Administration (FHA) mortgages

If you are a first time home buyer who doesn’t have the means for the 20% down payment required by conventional mortgages and have little-to-no equity, a Federal Housing Administration (FHA) mortgage would be a good option to pursue.

An FHA loan is one of the government-backed loan programs available. The down payment required is 3.5%, much lower than the typical amount. One thing to keep in mind, however, is that there is little flexibility with FHA loans. They will have a limit on the amount loaned out, will require mortgage insurance (around 1% of the loan cost), and will have fixed-rate 15- or 30-year terms.

A Federal Housing Administration loan is a good option if you have a low credit score, are low-income, or a first-time home buyer.

VA Loan

A Veterans Affairs loan is another government-backed loan program available to anyone who has served in the United States military for 90 consecutive days during war time, 180 consecutive days during peacetime, or six years in the reserves. The home will need to meet certain requirements set forth by the Department of Veterans Affairs for the loan to be approved.

There are incredible benefits to this alternative type of mortgage, as VA loans allow financing with no money down and do not require mortgage insurance. It is one of the few true 100% financing loan options available. If you qualify for a VA loan, it is an excellent way to become a homeowner.

Choosing the home loan that’s best for you

While home loans are a huge financial commitment, they are quite easy to navigate once you understand the benefits that each one has. By learning more about these loans, you can determine which one is the best for you. If you are a member of a credit union like ours at Borger FCU, you’ll have a financial representative available to guide you through the entire process of financing a home loan.

Your Membership Matters at BFCU

At Borger Federal Credit Union, we care about the needs and empowerment of our members. We strive to provide members with valuable insight and financial advice. We are able to offer lower rates on loans, and offer a variety of Services at the best possible rates. Call Us today and start enjoying the benefits of membership. You can also Contact Us through email or visit us during business hours to speak to a representative. We are located at 1051 N. Florida Borger, TX 79007.

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