November 6, 2018
A Home Loan Primer for First Timers
So you’ve decided to settle down and purchase a house. What is the next step? In order to be a homeowner, you have to agree to a mortgage with a financial institution, like a commercial bank or credit union. But many do not know the wide range of loans and mortgages at their disposal. As a Realtor and homeowner myself, I have compiled a list of home loans and mortgages for many first-time buyers to assure they receive the best deal and rate for their needs.
- Conventional Mortgage: This is the type of mortgage that is most commonly known and used throughout the country. I recommend this loan for those with stable income, strong credit and employment history, because of its versatility (it may be used on a primary home, investment property or secondary house) and for its lower overall borrowing costs. It is not insured by the federal government and comes in two different types – conforming and non-conforming. Be aware that this loan is best for those who have a debt-to-income ratio of 45 to 50 percent and can afford a down payment of at least 3 percent.
- Government-Insured Loans: The three government agencies responsible for these types of mortgages are the Federal Housing Administration (FHA), which are best for aspiring homeowners who may not have immaculate credit or a large down payment saved up; the Department of Veterans Affairs (VA), who offers loans to active duty members, veterans and their families; and U.S Department of Agriculture (USDA), who offers loans for rural and suburban homebuyers. It is important to note that they do not issue the loan, they insure
- Jumbo Loan: This is the most common type of non-conforming loan in the United States, since they exceed the Federal Housing Finance Agency’s federal loan limits of $453,100. In order to qualify, you must go through in-depth documentation, provide a minimum down payment of 10 to 20 percent and have a general FICO score 700 or higher. For this reason, this type of mortgage is best for affluent buyers in affluent areas.
As a first-time homeowner, you may receive special benefits, most notably a deduction on the interest you pay on the mortgage. It is important to discuss different options for financing your future home with not only your Realtor, but other homeowners as well. The type of loan that you receive, as well as the financial institution that grants you the mortgage both play an integral role in the house hunting process. Communication with your Realtor and lender is imperative when considering any home purchase.