Financing for First-Time Homebuyers

For first-time homebuyers, the number of financing options available can be overwhelming. It is important that the financing option you choose is one that you are comfortable with. After all, you will be paying on your home for many years to come. Taking a bit of time to do your homework when it comes to researching the basics of financing a home for the first time can save you a lot of money and time. It also doesn't hurt to have some knowledge about the specific market where the home that you are interested in is located, and whether or not there are any incentives to lenders that might mean added financial benefits for you as a buyer. First-time homebuyers must also look at their own financial situation to make sure that they get the mortgage that is best suited for their needs.

Types of Financing for First-Time Homebuyers

There are various mortgage loans that first-time homebuyers can choose from. Each of them has advantages and disadvantages and is differentiated by the agencies that offer them and the structure of the actual loan itself. As a first-time homebuyer, you may qualify for:

A conventional loan. A conventional loan usually refers to a fixed rate mortgage that is not guaranteed or insured by the government. The conventional loan is hardest to get because it has a number of requirements that many first-time homebuyers find hard to meet, such as a substantial down payment, excellent credit score, and sufficient income.
An FHA home loan. The U.S. Department of Housing and Urban Development's Federal Housing Administration (FHA), writes mortgage home loans that many first-time homebuyers can qualify for. This type of loan features a lower down payment (as low as three percent of the price of the home) than most conventional loans and is often a good choice for those with less than perfect credit. FHA home loans are guaranteed by the Federal Government.
A V.A. home loan. The Department of Veterans Affairs or V.A. does not make home loans but guarantees them with qualified lenders for veterans of the armed services of the United States. Most V.A. home loans require no down payment and have favorable terms that can save the homebuyer a significant amount of money.

Fixed Rate Home Loan vs. Adjustable Rate Mortgage Home Loan

A big consideration that first-time homebuyers must make when shopping around for a home loan is whether to go for a fixed rate home loan or an adjustable rate mortgage. The fixed rate home loan features a rate that is fixed – it will not change during the loan period. A fixed rate loan has obvious advantages. You will know what your monthly loan costs are for the whole loan period. Nonetheless, the adjustable rate mortgage is sometimes a good choice for first-time homebuyers or those who expect their incomes to go up during the course of the loan period. The adjustable rate home loan has a lower payment initially, and payments will adjust in reaction to changes that occur in market interest rates.

As a first-time homebuyer, putting some thought and research into your home loan can save you a lot of money over the life of your mortgage. There are many options out there for those who are looking to purchase a new home, home foreclosure, or other property, and it is sage advice to make a realistic decision that is based on what you can afford and the payment that you are comfortable with making for the long term.

Selecting a Lender

As a barrower you have virtually limitless choices in lenders. Banks, Mortgage Companies and Credit Unions are the most common choices. You may find a lender in your Hometown or Online. Shopping your choices is important, but comparing apples to apples is more important and often difficult. Ask for a Good Faith Estimate of your closing costs and look not just at the interest rate offered but at the APR or Annual Percentage Rate. The APR has been called the "mathematically-true" interest rate as it includes the interest charged and costs of originating the loan which may vary from one lender to another and therefore the APR will vary.

Whenever possible, I suggest you work with a local lender. They tend to be very competitive and also knowledgeable about your particular market which can prove invaluable, especially when values are fluctuating.