Those who are in the planning stages of buying a home for the first time may feel overwhelmed with choosing the right financing option. Experts always advise that a first-time home buyer should always set aside ample time to research and learn about financing options and the property market. It helps to understand what each option has in store for you so that you can take the best offer possible without experiencing any surprises down the line.
One of the primary decisions a home buyer makes is choosing a loan type. Which loan type is best for a first-time home buyer?
Conventional loans
This type of loan is also commonly known as a fixed-rate mortgage offered by traditional lenders like banks. As a first time home buyer, you’ll want a mortgage lender which offers a variety of choices for your convenience. For example, an independent online review of J.G. Wentworth, states that not only do they offer conventional fixed-rate mortgages, borrowers can also choose from other types of mortgage loans like jumbo loans and adjustable rate mortgages. A conventional loan is not government-backed and relatively more difficult to secure. Lenders have strict requirements when approving fixed-rate mortgages. You need to have a good credit score and enough money for a down payment.
Conventional loans can fall in any of these two categories: conforming or non-conforming. A conforming loan complies accordingly to guidelines set by Freddie Mae or Fannie Mac. The guidelines set forth by these organizations determine aspects such as the loan amount limit. On the other hand, a non-conforming loan comes from portfolio lenders where the specific loan guidelines are set forth by the underwriting institution.
FHA loans
The US Department of Housing and Urban Development offers various mortgage loan programs through the Federal Housing Administration. One of the main features of an FHA loan is lower down payments, and the loan requirements are easier to secure than a conventional mortgage. Most first-time home buyers consider FHA loans primarily because of the lower down payment and more relaxed conditions. With an FHA loan, a first-time home buyer who does not have excellent credit may have a better chance of getting approved.
VA loans
Another type of government-backed mortgage, VA loans are coursed through the US Department of Veterans Affairs. The offer does not come from the VA itself, but rather, they act as guarantor for mortgages offered by traditional lenders. By guaranteeing loan offers, veterans and those who are in service have the opportunity to apply for a home loan with terms favourable to them. Similar to an FHA loan, a VA loan generally has lower down payment and easier eligibility requirements. However, there are limits to the number of VA loans approved in specific states and areas within the country. If you want to apply for a VA loan, you must first secure an eligibility document from the VA.
Aside from these three loan types, you can find other mortgage programs sponsored by local governments, state governments, and agencies. Often the goal of these mortgage programs is to help first-time home buyers secure a property, as well as encourage home ownership in specific areas of the country. Before you settle on the type of loan you want to apply for, you may want to look into these programs to compare favourable offers best for your situation.
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