Loan Options For First-Time Buyers
Updated: Apr 13
If you are one of those people who are thinking to buy their first home, here are a few options that might help you get your first home loan sorted.
There are typically three kinds of loans: Conventional, FHA or VA. Of these, they can be repaid over the Long-Term or Short-Term.
These last up to 15 or 30 years, these have a high-interest rate, and you can negotiate terms as well. Long-term loans let you pay a minimal amount every month, but the overall cost exceeds the short-term loan.
The pay rate of short-term loans is higher, but with short-term loans, you get a lower interest rate. The overall payment of the short-term loan is also lower than the of long-term ones.
So, the first thing you need to do is to decide which one fit your bill. There is also the matter of interest rate, you can either select a fixed one that stays the same till the end or go for a variable one that changes with time, and it always goes from low to high.
If you are looking for a family home that you will occupy until the end of time, a traditional loan will suit you the best. It’s a 30-year loan with a fixed interest rate and low payments every month. It doesn’t matter with the way the real estate market sways, your mortgage payment and interest rate will not budge. There are two kinds of conventional loans, secure and unsecured. With secure loans, you have the backing of collateral such as property. However, most first-timers get unsecured loans that they get based on financial backing as well as credit history.
FHA loans are ideal for first time home buyers, who have low credit scores as well as modest incomes. In the last couple of years, FHA has granted 80% loans to first time buyers, which is a great thing. FHA stands for Federal Housing Administration, and these loans are issued by the government. Compared to conventional loans, where you have to pay 20% of down payment FHA loans only demands 3.5%.
FHA loans are ideal for the low-income group as the low-interest rates make it easier to pay the mortgage on a low salary. Calculated on the fixed interest rate, FHA loans can last up to 15 or 30 years, as per your requirement.
VA loan is reserved for service members, veterans and surviving spouses. According to VA loans, the first-time buyer who qualifies for it will not have to pay any down payment, and he or she will not be required to have any insurance. However, there are certain rules regarding VA loans; the home should be your primary residence. Moreover, the VA loans do not allow fixer-upper units; the house should be ready to move in at the time of buying.
To cap it all, knowing all options makes choosing the right loan very easy for the first time buyer.