When you’re a first-time homebuyer, obtaining a mortgage is a crucial step in the purchasing process. Nevertheless, there are several other factors you need to consider. While there are many financing options available, it may be overwhelming, especially if it’s your first time navigating the process.
So, taking your time to do proper research about the basics of property financing can save you loads of time and money. For instance, if the property’s location offers incentives to the lender, it means added financial perks for you. This blog will highlight some crucial factors first-time homebuyers need to consider.
First-Time Homebuyer: Requirements
To qualify for a mortgage as a first-time homebuyer, you need to understand the definition of it first. A first-time homebuyer is someone who has not owned a residence for three years or a single person who has only owned a residence with a spouse.
Moreover, you’ll also need to have proof of income for a minimum of two years, and it should be sufficient to pay the mortgage. You will also need to pay a down payment of about 3.5 percent and possess a credit score of at least 620.
First-Time Homebuyers: Loan Types
Conventional Loans
Conventional loans are mortgages that aren’t backed by the federal government and are typically fixed-rate mortgages.
Qualifying for this loan is extremely challenging as there are stricter requirements. For example, there’s a bigger down payment, a higher credit score is needed, and lower DTI ratios. However, once you qualify for a conventional loan, they are less costly than the other loans guaranteed by the federal government.
FHA Loans
The Federal Housing Administration is part of the U.S Department of Housing and Urban Development. The FHA provides various mortgage programs for homebuyers. Plus, it is easier to qualify for and has a lower down payment requirement.
FHA loans are one of the best options for first-time homebuyers as, in addition to the easy requirements and upfront costs, it also requires you to make a down payment as low as 3.5 percent. Nevertheless, all FHA borrowers must pay a mortgage insurance premium that will be a part of their mortgage payments. It’s a protection for the mortgage lenders in case of defaults.
VA Loans
The U.S Department of Veteran Affairs does not give out the loan themselves but guarantees mortgages from qualified lenders. This allows veterans to obtain loans with favorable terms.
They are easy to qualify for, but you’ll need a VA certificate to become eligible for application.
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