Are you in the market for your very first home? If so, congratulations! Purchasing your first home is among the most crucial decisions you will ever make in your life.
Like any other big decision, there are many things to consider before making your purchase—one of which is choosing what type of mortgage is best for you. This article will discuss the different types of mortgages available to first-time homebuyers and how to choose the best one for your needs.
Types of Mortgages for First-Time Homebuyers
First-time homebuyers have a variety of mortgages available to them, and each has its own set of pros and cons.
Fixed-rate Mortgages
Fixed-rate mortgages are a common mortgage type where the interest rate remains the same for the duration of the loan. This type of mortgage provides stability and peace of mind, as you will always know exactly how much your monthly payment will be.
Also, should you encounter an emergency where you need extra money, you don't have to use your mortgage money.
A viable option would be to get a personal loan for emergencies like illnesses or injuries, unexpected travels, or home and car repairs. Lending platforms, such as MoneyAsap, make borrowing cash easier by having a network of vetted lenders so you can shop around for loans and rates that suit your needs.
Adjustable-rate Mortgages
An adjustable-rate mortgage (ARM) is a type of mortgage where the interest rate fluctuates depending on market conditions. The benefit of an ARM is that it usually starts with a lower interest rate than a fixed-rate mortgage. The downside is that your interest rate could go up in the future, increasing your monthly payments.
Conventional Mortgages
A conventional mortgage is one that's not insured or guaranteed by the government. Conventional mortgages are perfect for borrowers with good credit standing, stable income, and who can make a 3% down payment.
Federal Housing Administration Mortgages
The Federal Housing Administration insures this type of mortgage. It is a good option for first-time homebuyers with less-than-perfect credit since it offers lower down payment and more flexible credit requirements.
Veterans Affairs Mortgages
This type of mortgage is available to eligible veterans and active duty service members. It offers several benefits: no need for a down payment, MIP, or PMI.
US Department of Agriculture Loans
USDA loans are for eligible rural and suburban homebuyers. With this type of loan, you get zero down payment and low interest rates.
Now that you know the different types of mortgages available to first-time homebuyers, you can begin narrowing down your options and shopping around for the best interest rate.
What Is the Average Interest Rate for First-Time Homebuyers?
Several variables determine the interest rates for buying a home, including your credit score, down payment percentage, type of loan, and market conditions. There is no evidence that first-time homebuyers with similar creditworthiness and circumstances pay higher or lower interest rates than experienced homebuyers.
What Is Considered a Good Credit Score for Buying a House?
The typical credit score required by most mortgages is 620 or higher. On the other hand, FHA loans can take a credit score as low as 580 with a 3.5% down payment. If your credit score falls below 500, you need to be a 10% down payment.
Choosing the Best Mortgage for You
Now that you know the different types of mortgages available and what interest rate you can expect to pay, you can start shopping around for the best mortgage. The best way to find a good deal on a mortgage is to compare rates from multiple lenders.
Choosing a loan that you feel comfortable with and that fits your budget is essential. When comparing mortgage offers, look at more than just the interest rate. Also consider the fees associated with each loan and the terms and conditions.
The key element in determining which loan is ideal for your needs is your financial health: your income, credit history, credit score, and employment and financial goals. Mortgage lenders may assist you in evaluating your finances so you can choose the best loan offers. They can also explain the qualification criteria, which are typically complicated.
Lastly, a good mortgage broker may give you tips on improving specific areas of your finances. This way, you have the best advantage in obtaining a loan and buying a house.
The Takeaway
Choosing the best mortgage for your first home can be a daunting task, but it doesn't have to be. By doing your research and comparing interest rates and loan terms, you can be sure that you're getting the best deal possible. Finally, with some help from a friendly lender or mortgage broker, you can be on your way to homeownership.