The Most Common Types of Loans for First Time Homebuyers

If you’re considering becoming a homeowner for the first time, it’s hard to know where to start and you might find the process somewhat intimidating. However, loans are available with lower down-payment minimums for those who qualify, and local buyer assistance programs are also available. In this article, we’ll cover the most common types of loans for first-time homebuyers and what they require.

 

Conventional Loans

This type of mortgage loan is usually a fixed-rate mortgage not insured by the federal government. They have stricter requirements than other types of loans, and due to their more stringent requirements, they’re the most challenging type of mortgage to acquire. The conventional loan requires a higher credit score (620 or more), a low debt-to-income ratio, and a more significant down payment. However, they have lower interest rates, and you don’t have to pay for private mortgage insurance (PMI) if you have a down payment of 20% or more.

 

FHA Mortgage Loan

The FHA (Federal Housing Administration) is part of HUD, or the U.S. Department of Housing and Urban Development. An FHA mortgage loan allows first-time homebuyers to make a down payment as low as 3.5%, plus you don’t need to have a higher credit score, and there are lower up-front loan costs. An FHA loan is easier to qualify for than a conventional loan, but one drawback is that all borrowers who take out an FHA loan must pay a mortgage insurance premium that’s rolled into their mortgage payments.

 

VA Loans

The VA guarantees mortgages from qualified lenders for those who have served in the military. The VA doesn’t make the loans, but it helps veterans obtain home loans, often with no down payment necessary. To get a VA loan, you’ll need to request your eligibility from the Department of Veterans Affairs. They will then issue an eligibility certificate if you’re accepted.

 

USDA

The U.S. Department of Agriculture provides USDA loans, but one misconception that many homeowners have is that the loans are only for farmers. USDA loans are intended for rural development and help home buyers find homes in rural areas. What many people don’t know is that there are many small towns and metropolitan suburbs that also qualify as rural. To qualify for a USDA loan, you must occupy the dwelling as a primary residence, have a low to moderate income, and be a U.S. citizen, Qualified Alien, or a U.S. non-citizen national. There are other eligibility requirements, but one of the benefits a USDA loan offers is that there’s a no down payment option available. A couple of disadvantages of the USDA loan are an upfront funding fee, which is only 1% of the total finance amount, and an annual fee, which is 0.35% of the loan.

 

Homeownership doesn’t have to be a far-off dream. If you’re ready to turn your dream into a reality, then Equity Mortgage Lending is here to help with our easy, hassle-free mortgage process. We offer a wide range of refinance options designed to meet your needs. Contact us today if you have questions about the loan programs we offer in the Mid-Atlantic area.

 


* Specific loan program availability and requirements may vary. Please get in touch with the mortgage advisor for more information.