When buying a home for the first time, it’s important to weigh your options when selecting the best type of mortgage loan and the terms you select around it.
Buying a home for the first-time can be intimidating – not only have to choose your neighborhood, your home’s features, and nearby school districts – then comes the task of being qualified for your first home loan.
Making a smart decision around the purchase of your first home can feel overwhelming, but it doesn’t have to be. Your trusted advisors at PrimeWay Federal Credit Union are happy to help you answer any questions you may have about your approaching home loan, and which of those loans might be best for your first time purchase.
In the meantime, here’s a little information on some of the most common loans first-time home buyers use, and some tips for deciding on what loan term might work best for you.
FHA Loans
One of the most popular mortgage loans, FHA (Federal Housing Administration) loans are available to all home buyers, not just first-time buyers. One reason FHA loans are a good option for first-time buyers is because of its low down-payment.
So if you’re buying a home for the first time, and haven’t saved for a large down-payment, you may be eligible for an FHA loan for as low as 3.5% of your home’s purchase price. Borrowers with a history of bankruptcy or foreclosures may also be eligible for an FHA loan.
There are several types of FHA mortgage loans:
- Fixed Rate – The most common type of FHA loan, the Fixed Rate mortgage is a good option for first-time borrowers. Since the interest rate will not change over the life of the loan, borrowers can feel good knowing exactly what their mortgage payment is every month.
- Adjustable Rate – An adjustable rate mortgage (ARM) occurs a lower interest rate and payment initially, that then increases over time. This mortgage loan may be attractive to first-time borrowers who move frequently or who want to buy a more expensive home initially (so they can take advantage of the initial (lower) fixed interest rate).
Not sure what the difference in payments will be? You can compare payments using our mortgage payment calculator.
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VA Home Loans
If you are or have completed military service, you may be eligible for a VA Home Loan. The VA assists Service Members, Veterans and eligible surviving spouses by providing a home loan benefit to become homeowners. VA Loans include a few loan types:
- Purchase Loan – a VA-backed mortgage loan that may get better betters than a private-lender loan.
- Native American Direct Loan (NADL) Program – If you are a Native American Veteran, or a Veteran married to a Native American, you may be eligible for a NADL to buy a home on Federal Trust Land.
- Interest Rate Reduction Refinance Loan (IRRRL) – You may be eligible for a VA-backed IRRRL if you have an existing VA-backed home loan and want to reduce your monthly payments.
- Cash-Out Refinance Loan – If you need to use part of your home equity to pay off other debt, you may be eligible for a Cash-Out Refinance Loan.
Consider Your Mortgage Loan Term
If you are a first-time home buyer, you will need to assess the best loan term for you and your family’s lifestyle goals. The loan term is the life of the loan – the amount of time you have to repay what you’ve borrowed from the bank.
Circumstances or wishes, like buying to renovate a property, or making your first-time home purchase your “starter home” could impact the way you choose the loan term for your mortgage.
What Home Loan Options are Best for First-time Buyers
Buying a home for the first time? It’s important to weigh your options when selecting the best type of mortgage loan and the terms you select around it.
Mortgage Payment Sizes
If you are more focused on the size of your mortgage payment, or won’t live in your first home for very long, consider the items below when selecting your loan term:
1. Shorter Mortgage, Larger Payment
The average life of a mortgage loan is 7 years. By choosing a shorter loan term, you will own the property faster. However, this means that your mortgage payments will be higher.
2. Longer Mortgage, Lower Payments
For first-time buyers, a longer mortgage might seem like a smart decision, as a longer loan term will stretch out your payments from 15 to 30 years, making your mortgage payment smaller. One thing to keep in mind when electing a longer loan term:
- The longer it will take to build equity in your home.
- The more interest you will pay – meaning that you will actually pay more for the price of your home.
Ask yourself what is more important to your life goals: building equity or having a lower mortgage payment. Weigh the benefits of making a higher payment over a 15-year mortgage vs. taking out a 30-year mortgage with a lower monthly payment.
To get more information about which loans may be right for your first-time home buying experience, visit PrimeWay mortgage loans online to request more information.