If you’re new to real estate, or preparing to make an offer on your first home, you might be wondering what mortgage is best for a novice home buyer. This is especially important now that mortgage rates have essentially doubled, putting budgets front and center. It also means the popular 30-year fixed is no longer the default option for home buyers, with cheaper adjustable-rate mortgages now a consideration. While both seasoned homeowners and first-time buyers may wind up with the same exact home loan, there are additional options to consider if you’ve never bought a home before.
Home Loan Types to Consider for First-Time Buyers
- Fannie Mae HomeReady or Freddie Mac Home Possible (3% down payment)
- FHA loans (3.5% down payment)
- VA loans (0% down payment for eligible home buyers)
- USDA loans (0% down payment for eligible home buyers)
- State Housing Finance Agency loan programs (down payment assistance and help with closing costs)
- Also look for local and national grants for first-time home buyers and Mortgage Credit Certificates (MCCs)
These generally don’t require much in terms of down payment, which seems to be a chief need/want for first-time buyers that don’t have the equity of move-up buyers. It is generally a good idea to put down 20% on a home purchase to avoid costly mortgage insurance and to obtain a lower mortgage rate, but I understand that isn’t always realistic.
Once you choose a loan type, you can decide on a specific loan program, such as a 30-year fixed, 15-year fixed, or an ARM. While most first-time buyers will ultimately go with a 30-year fixed, let’s discuss how the property itself could dictate your financing decision.
Is Your First Home a Starter Home or a Forever Home?
- Always think about how long you’ll stay in the property.
- Many first-time buyers move-up to larger properties within a few short years.
- Your expected tenure is also a key consideration with regard to paying points.
Ultimately, educating yourself on mortgages might be the best way to start your home buying journey. Being knowledgeable means being financially empowered. Talk to a Timberland Lender today to see what options are available to you!