Four Flavors of Loans for First Time Homebuyers

Becoming a homeowner is one of the most rewarding experiences life has to offer, but it can also be one of the scariest. It’s a big decision and comes with a hefty amount of financial commitment.

There are a lot of programs and specialized loans designed especially for first time buyers, but determining which one is right for you might seem daunting. The type of loan that’s right for you will be entirely dictated by your current situation and what your end goal is--and of course there are pros and cons to each.

home loans

Federal Housing Authority (FHA) Loan

If you don’t have a lot of money to put down towards your new home, an FHA loan might be the right choice for you. Federally insured, these loans allow you to put down as little as 3.5%, and afford homebuyers with lower credit scores or little credit history the chance to (often times) pay a lower interest rate than with traditional bank loans.

State Loan Programs

Most states, including Virginia, have state-specific loan programs that offer either loan or grant-based money to first time homebuyers that can be used for down payments, closing costs, and other fees associated with purchasing a home. Many of these programs require you to stay in your home for three, five, or even up to ten years, but for many people, the tradeoff is worth it. Your approval for this type of loan may take into consideration the location of the home you plan to buy and the size of your family.

home loans

Adjustable Rate Mortgage (ARM)

An ARM might be a good option if you’re just starting out in your career and looking to have the lowest possible monthly payment. But, selecting this type of loan comes with a caution. An ARM loan comes with a balloon payment, which means that you will be responsible for paying off the remaining amount left on your loan by a certain date. This can often be a large sum of money, causing many owners to refinance or move before the due date. The upside of an ARM loan is, you’ll enjoy a low, fixed interest rate and payment terms for a set amount of time (often times five years). This could help you get into a home sooner than you thought possible, but beware that after the fixed period ends, your interest rate and payment terms will increase, sometimes significantly.

Other Loans

If you’re an active duty military member or veteran, a Veteran’s Administration (VA) loan is probably your best bet. These loans require no money down and don’t require the buyer to pay the mortgage insurance typically required of other similar loans.

If country living is your sort of thing, a US Department of Agriculture (USDA) loan could be right for you. With a down payment requirement of around 3.5%, it’s an attractive option for those who want to live in a rural setting.

home loans

Using Nestiny’s suite of tools such as the Ready Report and True Affordability Tool, you can self-assess your readiness to buy and determine the type of loan that may be best for you. It’s easy to get started it you haven’t yet--just sign up using the link at the top! Be sure to consider your options carefully, and be sure to consider all risks associated with any type of loan. Happy hunting!

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Are you a real estate professional? Go here.