7 Feb, 2022

5 Types of Home Loans for First-Time Home Buyers

Congratulations! The house search is over, and you’ve found the home that’s right for you. But now what? Well, though you probably have lots of...

Congratulations! The house search is over, and you’ve found the home that’s right for you.

But now what? 

Well, though you probably have lots of decorating ideas already, before you can get to that fun stuff, you need to get through some stuff that’s not quite as fun, like securing a home loan. 

As a first-time homebuyer, home loans can be intimidating. You’ll need to consider what your best options are for financing, what kinds of loans are available to you, and how you can make the smartest financial choice to get in the door of your new home — and still have enough money left to get that decorating started!

Top 5 First-Time Home Buyer Loans

So, let’s take a look at different types of loans for first-time home buyers to help you determine which option might work best for you. 

01: FHA Loan

Great for first-time home buyers and those who have a not-so-great credit score, FHA loans, from the Federal Housing Administration, protect lenders with a guaranteed reimbursement if the borrower should default on the loan. This allows lenders to lower their acceptance standards, requiring only 3.5% down with a credit score of 580, dropping to 500 with 10% down. 

Add low interest rates to that mix, and you can see why this is a popular financing option. However, this type of loan does require mortgage insurance which equates to an upfront cost at closing, along with an ongoing cost factored into your mortgage payments. 

02: VA Loan

If you are a military service member, veteran, or surviving spouse, this is definitely the way to go! The U.S. Department of Veterans Affairs offers this loan with no down payment and no mortgage insurance necessary. It also comes with low rates — though lenders may add their own requirements, so it’s best to shop around. You don’t necessarily need a high credit score, but you may need some patience as the approval process can take longer than other options.

03: USDA Loan

If the house you want to buy is located in a rural area, then you’ll want to see if you qualify for this loan. Meant to promote homeownership in less populated areas, USDA loans are backed by The U.S. Department of Agriculture and allow for 100% financing, no down payment, low interest, mortgage insurance rates, and low income requirements. It is only available in certain regions, but certainly worth looking into! 

04: Fannie Mae and Freddie Mac Loans

They may sound like fast food restaurants, but these government-sanctioned companies are known for serving up great financial options — not fries!  Both of these are conventional type loans offered to first-time home buyers with a credit score of 620 and requiring just 3% down. You do need mortgage insurance, but it can be canceled once you’ve built some equity. 

05: Conventional 97 Loan

Like Fannie and Freddie, this conventional mortgage requires just 3% down by first-time homebuyers with credit scores of at least 620. Again, mortgage insurance is necessary but can be canceled, and since there is no upfront insurance fee, you save on closing costs.  

Additional First-Time Home Buyer Loan Programs

Besides the loans above, there are several first-time home buyer assistance programs worth considering as well. 

Good Neighbor Next Door

Sponsored by The U.S. Department of Housing and Urban Development, this federal loan program provides a 50% discount on real estate purchases in revitalized areas. It is available to K-12 teachers, firefighters, law enforcement officers, and emergency medical technicians. Good neighbors, indeed!

Energy Efficient Mortgage Program

With this program, lenders will extend your loan limits, meaning you can borrow more, if you purchase a home with energy efficient improvements.

FHA (203)K 

Designed for those willing to take on a fixer-upper, this special FHA-backed program takes into consideration the value of the property once renovations have been completed, and allows you to add the funds needed to make the improvements to your regular mortgage. 

Down Payment and Closing Cost Assistance Programs

There are often programs available to first-time home buyers through local or state governments that lower down payment and closing costs. They’re definitely worth looking into if you want to save as much money as you can upfront. And who wouldn’t?

Have more questions about buying a home? From financing to understanding mortgage interest rates to first-time home buyer tips, the BlueWest team is here for you! We’re happy to answer any of your questions and help guide you through the home buying process. Contact us online to get started today! 

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