Mortgages for First-Time Home Buyers
First time home buyers today have one of the best opportunities in history to purchase their first home. In no other time could you buy your first home with just 3.5% down and a 3.5% interest rate. It even sounds crazy.
Shouldn't I Apply for A conventional Mortgage Loan?
Conventional Mortgage Loans
There are over 70% of homeowners in the US that obtain conventional mortgages. Conventional mortgage loans are loans issued by private lenders that make loans to homeowners without help from government repayment guarantees
This may seem a little unusual since a conventional mortgage typically requires much stricter requirements to qualify including a credit score of over 700 to qualify and a minimum of 20% down to avoid PMI (Private Mortgage Insurance).
Private Mortgage Insurance is a fee charged to borrowers and added to the loan to insure the lender against potential borrower default.
There are additional benefits to commercial mortgages for those that can afford them like home occupancy.. With a conventional mortgage there is no restrictions on who lives in the home so it can be perfect for an investment home.
Mortgage insurance premiums apply to FHA loans, which are guaranteed by the federal government. Private mortgage insurance applies to when you make a down payment of less than 20% on a Conventional Mortgage. More on this later.
FHA Home Loans |The most popular first time home buyer loan
The Best Choice For First Time Home Buyers
If your income and credit score are not making you feel great and are less than 640, an FHA loan may be the right fit for you. with an FHA loan, there are no minimum income requirements, and it is more likely that you can be approved with poor credit.
Another major advantage of the FHA First Time Home Buyer Program is that the down payment can be as low as 3.5%, in addition the interest rates are quite often lower than those rates for conventional loans, due to the government guarantee.
The only downside to the FHA First Time Home Buyer Loan is that the MIP (Mortgage Insurance Premium) may offset the lower interest rates.
An FHA First time home buyer who gets an FHA loan must pay an upfront MIP of 1.75% of the base loan amount, regardless of the LTV (Loan To Value) Ratio. After the initial payment, a smaller MIP is included with the monthly mortgage bill for the life of the loan. Remember that you can always refinance once the equity in your home goes above 20%.
However, the monthly MIP will be lower if you opt for a shorter term (e.g., 15 years instead of 30), or if you make a larger down payment. And because the MIP is a percentage of the outstanding balance, the amount you pay will fall as your loan balance decreases.
USDA Loans – Zero Down Home Loan
The USDA loans were designed for people with limited financial resources who live in USDA-designated rural areas. This designation comprises about 95% of the land in the United States and 100 million people. So don’t assume that you don’t qualify, even if you live near an urban area.
As with FHA loans, the USDA Loan does not loan money itself. Instead, the US Department of Agriculture, USDA insures 90% of the loan amount. This encourages private lenders to issue mortgages to people who otherwise might not qualify.
The major benefits of USDA loans include:
- No down payment requirement.
- Lower interest rates (usually).
- No loan limits. Unlike FHA and VA mortgage loans, there are no restrictions on the size of the mortgage you can obtain. Think a home with 20 acres.
- Lower mortgage insurance fees: an upfront fee of 1% of the borrowed amount + a monthly fee of .35% of the mortgage amount. The latter fee must be paid for the life of the loan.
The main drawback of the USDA program is that the property you want must be in a rural area or small community. Before you apply, use the USDA’s property eligibility tool to determine if the home is located in USDA-designated rural area.
In addition, the borrower qualification requirements are stricter than those for FHA and VA loans. Typically, you’ll need a minimum credit score of 620, and a debt-to-income ratio of no more than 41%. The FHA loan allows for a debt-to-income ratio of up to 50% (or more).
Because the program is tailored for low-income home buyers, your income must not exceed a certain amount. These income limits vary from county to county, so review the maximum incomes for your county before you go any further.
VA Loans – Loans For Vets! (Zero Down Home Loan)
If you’re an active-duty service member, a veteran, a reservist or National Guard member,you most likely qualify for a VA Home Loan. The benefits are huge.
Loans guaranteed by the VA don’t require any down payment or mortgage insurance.
In addition, there is (technically) no minimum credit score, though many lenders will want to see a score of 620 or higher.
Theoretically, there is also no limit on how much you can borrow. However, because there is a limit on the amount the VA can guarantee to repay private lenders in the event of default, there is a practical loan limit. In most parts of the country, the loan limit average is $520,000. For high-cost areas in the continental U.S. the limit is $726,555, and it’s even higher in Hawaii. Check with us to see what the limit is in the area that you are looking to purchase..
You do have to prove that you earn enough income to repay the loan, and you can’t have too much debt. The guidelines for VA loans is typically easier than those of conventional loans.
VA loans can be used only to finance or refinance a primary residence. You can’t use the loan to buy or refinance a vacation or investment property unless you plan to live there for at least a year. We are the #1 source for VA Home Loans.
First Time Home Buyer Expert Mortgage Information