You’ve saved enough for a down payment. You’ve done your due diligence on neighborhoods. You’re about to head to closing.
But first, one last thing, choose your mortgage! You’ve got loans and options, though, and it all gets complicated pretty fast. Mortgage terminology is complicated and opaque.
It can be hard to determine which loan is right for you. This guide will give you a starting point in understanding the home mortgage types available to you.
Conventional mortgages are one of the main mortgage types for first time home buyers. These usually require a down payment of at least 20% of the sale price, so first time home buyers should budget for this. They also require borrowers to have a good credit rating and debt-to-income ratio.
Closing costs vary depending on the lender but can range from 3% to 7% of the total loan amount. The repayment terms also depend on the lender, ranging from 15-year terms up to 30-year terms, with lower monthly payments the longer the term.
If a first-time home buyer finds they don’t qualify for this type of loan, other types of mortgages may be available.
Fixed rate mortgages are ideal for first time home buyers, as they offer a steady, fixed payment each month with the same interest rate over the life of the loan. This allows home buyers to budget their expenses, knowing what their mortgage payments will be.
The interest rate on fixed rate mortgages remains the same over the life of the loan, and is usually more expensive than Adjustable Rate Mortgages.
But provides the home buyer with a more secure financial option. Also, payment amounts stay the same and assist in creating comfortable long-term financial security for the home buyer. The terms of fixed-rate mortgages are generally between 10 and 30 years, providing the opportunity for the buyer to invest in their future.
Adjustable rate mortgages are one of the most popular mortgage types for first time home buyers since they offer the chance to get a low introductory rate and save on payments. With an ARM, borrowers are guaranteed a fixed rate for a predetermined period, after which the interest rate will change based on the market rate.
This can result in lower payments over the life of the loan, including the initial period, though it does come with the possibility of payment increases in later years. Borrowers should be aware that their payments may be impacted by higher interest rates and should plan accordingly.
These loans are designed to make the process of buying a home more accessible to those who may not have the typical amount of money saved up for a down payment. They typically come with lower interest rates and more lenient credit score requirements than conventional loans.
Also, many government-backed loans offer down payment assistance and other benefits. However, if you still require assistance with loans, there are mortgage broker services available to help you.
Learn More About the Different Mortgage Types
First-time homebuyers have many different mortgage types to choose from depending on their individual needs. It’s important to assess your financial situation, research your options and compare rates to find the best mortgage for your needs.
A mortgage advisor will help guide buyers to the right product for their situation. Speak with a mortgage specialist to find the perfect fit for you today!
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