A First-Time Home Buyer’s Guide to the Different Types of Home Loans
On average, today’s homes are on the market for only 38 days before they’re sold.
If you’re considering buying a house, you’ll need to be ready to make a firm offer immediately. In many cases, you may need to get pre-approved in order for a homeowner to even think twice about selling their home to you.
If you’re a first-time homebuyer, getting a mortgage can seem like a daunting process. Yet obtaining financing for your home may not be as difficult as you think.
What are the different types of home loans, and which one is right for you?
Let’s take a look.
Conventional Loans
The most common types of home loans are conventional loans. The government does not back these. However, conforming loans are required to conform to the standards set by the Federal Housing Finance Agency (FHFA.)
Non-conforming conventional loans won’t meet these standards. The buyer may be purchasing a larger home or have insufficient credit for a conforming loan.
Both conforming and non-conforming loans can be used to purchase a primary residence or investment property. And you may be able to get one with as little as 3% down. 30-year fixed conventional loans are popular for homeowners.
However, a higher downpayment may be required in order to avoid paying Private Mortgage Insurance (PMI) with this type of loan. You’ll also probably need a decent credit score to obtain one.
Government-Insured Loans
While the US government doesn’t lend out mortgages to anyone, it will back certain types of loans. These may be an option if you don’t qualify for a conventional loan.
For example, an FHA loan is backed by the Federal Housing Administration. It offers more relaxed criteria and no required downpayment. Here are some other important things to know if you’re planning on going this route.
In addition, USDA loans are designed to help moderate or low-income homebuyers purchase homes in rural areas. You may, however, encounter some upfront fees.
VA loans provide flexible, low-interest mortgages for individuals who are veterans or on active duty. They require a low downpayment and a minimum credit score. If you’ve served in the military or are currently in the service, this could be a wonderful option for you.
Fixed-Rate Mortgages
Fixed-rate mortgages are another popular choice for first-time buyers. They provide you with the same interest rate throughout the life of your loan, so it won’t fluctuate once you’re locked in.
These loans are usually set in 15 or 30-year spans, although some lenders may allow you to pay them off in as little as eight years.
Fixed-rate mortgages are easy to fit into your budget. However, you may end up paying more interest. If you plan on staying in your home for at least 5 to 7 years, it’s probably worth it to get a fixed-rate loan.
Types of Home Loans
If you’re purchasing a home for the first time, you’ve got to know about the different types of home loans available. Talk to your mortgage broker or financial advisor about the right loan for you. Once you’ve gotten approved, you can enjoy your home for years to come.
For more information on your home and lifestyle, read our blog today.
