Often, buying a home is even cheaper than renting one in the long run, but before you become a proud homeowner, you've first got to come up with the funds necessary to buy your home. Chances are, you're not prepared to buy your first home in cash! Thankfully, there are several loan options available, even for first time home buyers. Explore your choices and learn more about the finer details of each type of loan in order to know where you need to focus your time and effort.
Conventional Home Loans
Conventional home loans are neither insured nor guaranteed by any government agency. However if your down payment is less than 20 percent of the total value of the home, these loans are usually fully insured by private mortgage insurance (PMI). With conventional home loans, your interest rates will be lower than the rates of other types of loans. It's a good idea to check out the Federal Housing Finance Agency's website to see the latest loan limits for conventional home loans.
There are actually two types of conventional home loans: conforming and non-conforming. The specific type of loan that you get will be determined by the type of residence you're looking to buy. If you are unsure about your credit score, or if you have some credit issues, you may want to consider being pre-approved for your mortgage through the lender you're considering.
FHA Loan 203(b)
One of the most popular options for first time home buyers is the FHA 203(b) loan. This particular loan is insured by the government, which means that you'll have more options when it comes to competitive rates. Something to keep in mind with this FHA loan is that the interest rates are subject to change on a day-by-day basis, so you'll always want to ask lenders about the latest rates before you apply.
A big advantage of the FHA 203(b) loan is that it requires a lower down payment than conventional loans – as little as 3.5 percent. You also won't have to worry about working to improve your credit score before you apply since this particular loan doesn't require that you have impeccable credit. That said, you'll still have to meet specific FHA credit qualifications.
203k Home Loan
If your dream home is in need of a bit of improving, then you might be interested in applying for a 203k home loan. With the 203k loan, the estimated cost of your repairs will be added to the total purchase price of the home. This loan is federally insured and only needs a single closing. While the interest rates for 203k loans are a bit higher than other FHA loans, they usually come with less risk because they are guaranteed. Something else to keep in mind with a 203k home loan? The application process can be a bit longer than that of other types of loans since lenders have to do a bit more work to successfully track your project.
In order for you to be considered a first time home buyer and eligible for these loans, it must be at least three years since you bought your last home. Explore your options today and start applying for your very first home!