People looking for their first home go through a lot of steps that are both challenging as well as stressful. Often the first-time home buyer has limited experience with the demands and qualifiers required to obtain a mortgage and all the different products that are on the market.
To provide some simple, clear information, here is a description of the most common mortgage loans for first time home buyers and their benefits and possible drawbacks.
- Fixed rate – the most common mortgage loans for first time home buyers and for experienced home buyers, is the 30 year fixed. This will have a slightly higher interest rate but allows the homeowner to pay off the principal and interest over 30 years. Monthly mortgage amounts will never change and it can be refinanced. Other options include a 15 or 20 year fixed, which will have higher monthly payments over a shorter time period.
- Adjustable Rate Mortgage (ARM) – this is a bit less popular for first time home buyers and includes a set rate for a period of time (often 5 years) and then an annual adjustment based on the pre-selected market index for the remaining period of the loan. These are a good option when interest rates fall or stay the same, but can add significantly to monthly payments if interest rates rise. The benefit to this is the set period of the loan after which a refinance may be possible if the payments will go up significantly.
Some of the most popular mortgage loans for first time home buyers are FHA loans as well as VA loans, which are exclusively for veterans or active duty military service members.
FHA loans offer loans with small down payments and have a lower credit score and qualifying conditions than conventional loans that are offered by banks and mortgage companies. The government does not guarantee the conventional loans, so they typically have increased down payment and interest rates compared to government-insured home loans.
To learn more about the best mortgage loans for first time home buyers and specifically for your needs, talk to the loan experts at Guaranteed Rate.
2 people like this post.