Congratulations on your decision to buy a home! This huge milestone will likely shape your life for years to come. Before you get too far ahead of yourself, it’s important to take a step back and understand the different types of home loans available to new buyers. Not all loans are created equal, and choosing the wrong one could cost you thousands of dollars in the long run. Here are the best types of home loans for new first-time homebuyers:
A fixed-rate mortgage is a good option for a first-time homebuyer because it offers predictability and stability. With a fixed-rate mortgage, your interest rate will stay the same for the entire length of the loan, so you’ll know precisely how much your monthly bill is. That can help you budget and plan for the future.
Another benefit of a fixed-rate mortgage is that it protects you from rising interest rates. If rates increase after you get your loan, your payment will stay the same. That can save you a lot of money over the life of the loan. So if you’re thinking about buying a home, be sure to consider a fixed-rate mortgage. It could be just what you’re looking for.
Adjustable-Rate Mortgage (ARM)
You might wonder why you would ever choose an Adjustable-Rate Mortgage (ARM) over a fixed-rate mortgage. After all, the interest rate on an ARM can go up while the interest rate on a fixed-rate mortgage is locked in. However, there are some advantages to choosing an ARM that you should consider.
First, the initial interest rate on an ARM is often lower than the interest rate on a fixed-rate mortgage. This can save you money in the short term. Secondly, if interest rates go up after you take out your mortgage, you will still have the option to refinance into a fixed-rate mortgage. Finally, if you only plan to stay in your home for a few years, an ARM can save you money in the long run. So, if you are considering a mortgage, ask your lender about ARMs.
A Federal Housing Administration loan is a mortgage insured by the FHA. In other words, if you default on your loan, the FHA will step in and cover the difference. Because of this added security, lenders are usually more lenient when approving FHA loans. That doesn’t mean you’ll necessarily get a lower interest rate on an FHA loan, but it does mean that it’ll be easier to qualify for one than it would be for a conventional mortgage. FHA loans are available with both fixed and adjustable interest rates.
A VA Loan is a mortgage loan backed by the US Department of Veterans Affairs. This loan allows eligible veterans to purchase a home with no down payment and no private mortgage insurance (PMI). VA Loans also offer competitive interest rates and flexible repayment terms. To qualify for a VA Loan, you must be a veteran, active duty service member, or reservist who has been honorably discharged.
You will also need to obtain a Certificate of Eligibility from the VA. Once you have your Certificate of Eligibility, you can begin shopping for a home. When you’re ready to apply for a loan, your lender must submit your application to the VA for review. If your loan is approved, the VA will guarantee a portion of it, making it easier for you to qualify for financing.
A USDA loan is a mortgage option available to eligible homebuyers looking to purchase a home in a rural area. USDA loans are issued by the US Department of Agriculture (USDA). They are available to qualifying applicants who do not have access to other financing options. USDA loans are typically fixed-rate mortgages, with terms of 30, 20, or 15 years, but may also be available as adjustable-rate mortgages (ARM).
In addition to the standard eligibility criteria (such as credit score, income, and employment history), applicants for USDA loans must also meet specific property eligibility requirements. To be eligible for a USDA loan, the property must be located in an eligible rural area as defined by the USDA. The property must also be owner-occupied and meet certain dwelling standards set forth by the USDA.
So, there you have it: the best types of home loans that new home buyers should know about. Whatever loan you choose, make sure you partner with a lender with the best mortgage loan rates because a small interest rate difference can save you a lot in the long run. Good mortgage lenders will also be able to guide you through the loan application process and help you secure the best interest rate for your specific needs, so be sure to shop around and find one that’s a good fit for you.
If you’re a first-time homebuyer, one of these loan options is sure to fit your needs. Keep in mind that the best type of loan for you will depend on your individual circumstances. So be sure to consult with a lender before making any final decisions.