Homeownership is the dream of many Americans. However, it can sometimes seem out of reach, with mortgage approval hinging on satisfying strict requirements for credit history, down payment and other factors. Add in rising home prices and other economic factors, and the obstacles to homeownership can seem great for those who are looking to take a step up from renting. Fortunately, there are many home loan programs, operated by both banks and the government, that focus on aiding first-time homebuyers secure mortgages.
These home loans differ in some important respects from other mortgages, as they are designed specifically to assist first-time home buyers, and generally have relaxed criteria. For instance, applicants may be able to gain approval even if they have fair or bad credit. Lower down payment requirements are also a prominent feature of such mortgages. Other specifics of the loan, like the interest rate, structure, and repayment will may also be modified.
Prospective first-time homebuyers can turn to conventional loans, government-supported mortgages and even grant programs. Talking to a financial expert can help you identify the best options for a first-time homebuyer mortgage.
Let's establish who a first-time homebuyer exactly is, as the definition may be a bit more broad than you think. Certainly, those who have never owned a home before are included in this definition. These may be growing families who are making the transition from renting to owning, or young professionals who have lived in apartments all their lives. But the term "first-time homebuyer" also extends to people who have owned a home before — just not in the last three years before seeking a mortgage. While state and lender-specific criteria may vary, in general, individuals who have not been homeowners for at least three years may qualify as first-time homebuyers.
As opposed to grant and financial assistance programs — which are also maintained to help facilitate homeownership — a first-time homebuyer mortgage is a home loan that caters specifically to borrowers who benefit from relaxed qualification standards. Some of the ways in which these mortgages differ include:
There are a wealth of options for prospective first-time homebuyers, including conventional loans and government-supported mortgages. Borrowers can find conventional loans at a bank or other financial institution, like an online lender or credit union. These first-time homebuyer mortgages usually have a credit score requirement of at least 680, and you may be able to negotiate for favorable repayment terms or structures. For instance, a variable-rate mortgage that is interest-only grants you near-term cost savings in the rate and monthly payment. Such a loan transitions to a fixed-rate after the introductory period, allowing you to budget for paying down the premium.
On the other hand, government-sponsored mortgages may have even more attractive terms. Because the government secures the loan, the lending organization is more free to lower credit score or down payment requirements. First-time homebuyerss can get a mortgage through the:
One thing to be mindful of when seeking a first-time homebuyers mortgage is monthly mortgage insurance. Mortgage insurance is usually incorporated into the monthly payments, and is a risk measure that insures the lender against defaults. For borrowers, however, it can become a major cost that offers no benefit, but it is required for most government-backed loans. Homeowners with an FHA mortgage, for instance, generally cannot get rid of mortgage insurance unless they refinance into a conventional mortgage. That is one edge conventional mortgages have: if mortgage insurance is required, it will be terminated once the loan reaches a loan-to-value ratio of 78%.
Want to lean more about first-time homebuyer mortgages and how the various options fit your needs? Contact The Federal Savings Bank today.