Buying a house for the first time can be an exciting experience – so long as you can afford it. Experts found that in 2020, almost 60% of first-time home buyers financed their dream home with a conventional mortgage. You probably don’t have the cash to buy a house outright unless you win the Lotto. Instead, you’ll likely have to take out home loans. With so many types of home loans available, it may be overwhelming if you, as a first-time home buyer, need help understanding everything. That’s why familiarizing yourself with the different options is an excellent idea.
If you’re buying a house for the first time and need more information on different mortgage types, keep reading. Here are three common ones you can choose between.
1. Down Payment Assitance (DPA)
When you buy a house, you need to pay a down payment when taking out most mortgages. However, you can apply for down payment assistance if you need the funds for the initial down payment on the home. This type of mortgage loan can help you cover the initial costs when putting an offer on a house.
Down payment assistance loans are typically low- to no-interest loans or grants. They’re also reserved exclusively for people buying a home for the first time. If you get awarded a DPA grant, you won’t need to repay it. Requirements for assistance programs like a DPA may differ in each state, so check your state’s requirements before proceeding.
2. Conventional Loan
This type of mortgage loan is an excellent option for buyers with a good credit score. A conventional loan can be taken out by a first-time home buyer or someone who already owns real estate and wants to buy an investment property or a second home.
One thing to note about these loans is they often come at a higher interest rate; however, the overall borrowing costs are more reasonable. There are some drawbacks, unfortunately, such as this type of loan typically comes with a higher down payment requirement. View this mortgage broker here for more information on first-time home loans available.
3. Government-Insured Loans
If you’re struggling to qualify for other loans like a conventional loan, then a government-insured loan may be a better option. These types of loans don’t require a large down payment, which makes them a better choice for first-time home buyers that have a limited amount of funds available. Furthermore, they may be easier to qualify for as their credit requirements are more flexible than other loans.
Unfortunately, Federal Housing Administration (FHA) loan sizes are generally lower than other loans, such as conventional mortgages. It’s also worth noting that you may have to submit more documentation to prove eligibility.
Understanding the Types Of Home Loans Available
Knowing your loan options as a first-time home buyer is vital if you want to be successful in your application. You can choose from several types of home loans, such as a down payment assistance (DPA) loan, a conventional loan, or an FHA loan. Each has its own pros and cons, so speaking to a professional is recommended to determine which is right for you. If you’ve found this article helpful, we have more. Find them in our Finance, Business, Technology, and Lifestyle categories.
