A first mortgage can be hard to figure out while weighing your options. It seems like there are a million different types of mortgages out there and they all make it seem like they are the right fit for you and your family!
We’ve already discussed some of the ways to know you’re ready to purchase your first home, like having 30% saved for the down payment and fees, are sure you’re going to be living in this home for the next 10-14 years, have a secure job, etc.…
In this article, we’re going to be taking an in depth look at what your first mortgage options are as a first time home buyer, so that you can become empowered to make the best first mortgage decision for you and your family!
Mortgage rates are currently near record lows, at the same time as rents continue to rise making now the perfect time to make the leap from renter to buyer. There has not been a better time to become a first time home buyer since before the financial crisis, so you owe it to yourself and your family to do your due diligence.
I already briefly mentioned the importance of saving up 20% for your down payment and an additional 10% or so for the assorted fees and taxes that come with your first mortgage. If you haven’t been able to save up that much you can still get a loan with as little as 3% of the purchase price and we’ll look at those options.
Let’s get started:
The 4 Best First Mortgage Options For First Time Homebuyers.
1. FHA Loans.
2. Conventional 97
4. Home Possible
Let’s look at each of these options in a little more detail.
1. FHA Loans. This is the most popular loan type for first time buyers. The most common loan is the 203(b) loan, which allows for a smaller down payment (sometimes as little as 3.5%) and is widely available from a large variety of lenders across the country. The requirements for FHA loans are fairly reasonable with a minimum credit score of 500 and a good enough credit history. This loan is mostly used for single-family homes, as there are restrictions with other kinds of purchases such as condos. FHA loans is generally one of the safest first mortgages you can get with the most favorable terms, as such they should be the first choice for any potential first time home buyer.
2. Conventional 97. The conventional 97 mortgages is another one, which allows for a lower down payment, usually 3-5% in this case. This type of first mortgage does require you to use the home as your primary and only residence, you can’t own any other properties if you are approved for a conventional 97 mortgage. This type of mortgage can only be used for a single-family home, and it requires that you complete a homeownership course before you are approved. The Conventional 97 is a great mortgage for those who can’t or simply don’t want to tie up all of their money in a down payment. Because the conventional 97 forces you to live in the home and not own any other properties, it attracts those who really want to own a home but might not be able to without this program.
3. HomeReady. HomeReady mortgages are provided solely by Fannie Mae. As with the other types of mortgages we’ve looked at today you can put as little as 3% down. The neat thing about the Homeready mortgage is that it allows nonoccupant borrowers to apply. Which means that relatives, spouses or even friends can apply for the mortgage in order to help the primary applicant get established. Homeready is an excellent first mortgage choice for those who want to get ahead and have someone willing to co-sign on the purchase of their first home. This is a great choice for recent college graduates and those who are freshly out of the military and looking to own more than 1 home in the near future.
4. Home Possible. The home possible is extremely similar to the Conventional 97 except that Freddie Mac only issues it. The loan allows for a down payment of between 3-5%. Like the Conventional 97 you cannot own or be part owner in any other property, and you have to complete a homeowners course before you can be approved. The only real difference between this and the conventional 97 is the variety of lenders, which offer them. The Conventional 97 is offered by many different kinds of lenders while the homepossible is only available from Freddie Mac. HomePossible loans are a great option for those that might not qualify for other first mortgages options but still want to make the leap into home ownership.
Picking the correct mortgage progam for you and your family when you’re a first time buyer can be confusing!
In this article, we tried to alleviate some of that confusion by explaining the 4 best types of mortgages for first time buyers.
We looked at:
1. FHA Loans. This is the best choice if you can’t afford a conventional mortgage.
2. Conventional 97. If you are looking to buy a primary residence this is a great choice.
3. HomeReady. This is a great choice if you think you might want to invest in another property later.
4. Home Possible. This is a great choice if you qualify for a Freddie Mac loan.
By now you should have a much better idea of what your options are, the next step is to do a little more research into each of these types of mortgages and figure out which one is best for your current situation.
Remember that picking the right mortgage and getting the right interest rate can save you thousands of dollars on the life of your loan, so take your time and really do your research.
Remember this is the most important financial decision you are going to make over the next 30 years of your life! If you treat it with respect you’ll make the right decision and become a successful homeowner!