You’ve done it. You’ve worked hard and saved up enough to begin your first-time home buying experience. There are several options on the market and you’ve narrowed in on the one you want, now the real work begins, selecting the appropriate financing option. As a first-time homebuyer, there are ways to maximize your options. In the United States, the government and even local governments will incentivize people to purchase homes, especially first-time homebuyers. You can certainly take the conventional home loans route, or potentially take advantage of the governments options if they fit your needs.
What Are First Time Home Buyer Loans?
First time homebuyer loans are financing options designed to make owning a home easy for first-time people. It can be intimidating to take out a large loan, but with advantageous rates and smaller down payments, it can make buying a home that much easier. While there isn’t much in the way of conventional loan benefits, you will likely find more through the government. This can be done through FHA or Federal Housing Administration loans or if you were in the military, a VA loan.
Keep in mind that many of these perks only extend to first-time buyers, so if you intend on moving you may lose some of the benefits you’re awarded now on the next go around.
How First Time Home Buyer Loans Work
Let’s start with a traditional conventional loan. While there isn’t a standard discount or benefit, some financial institutions may offer deals to first-time homebuyers. This could be in the form of less money down, a more competitive interest rate or the elimination of PMI or private mortgage insurance. Be sure to check with your local lenders and see if they offer and specials.
The second option is an FHA loan, which is from the government. Essentially it allows you to put less money down and will give you a competitive interest rate on your first mortgage. On top of that, you will likely find reduced costs associated with the process, whereas a conventional loan might keep costs higher.
A final option is for those who are or have served in the military. This will give added benefits for those that have served, but ensure you are eligible before adding it to your list of options. Also, these are typically capped based on certain factors. Once you’ve decided on your financing option, you can begin the process. The application process is in-depth and will require tax returns, property appraisal and closing costs to name a few.
After all is said and done, it can take 30 to 90-days before a loan is set to close, so ensure you keep a realistic expectation of the process. If approved, the bank will become lien holder one and you can begin moving in once you’re handed the keys. If you don’t qualify for a first time home buyer loan, check our resource on bad credit home loans here.
The Main Advantages
One of the biggest advantages of a first-time home buyer loan is the lower upfront money needed. By having a lower down payment, lower interest rate and lessened closing costs, that’s money you can save for making upgrades or simply having it for a rainy day.
Another advantage is this is only for first-time home buyers. The goal is to incentives home ownership so many of these programs and lenders are willing to work with you as you navigate the financing process.
As with any option though, take time and shop around because you may find after all, a conventional loan still might be better than an FHA or VA loan.
While there aren’t many, one of the main disadvantages of first time homebuyer loans is it can set an unrealistic expectation or how other loans will be. These programs and rates are meant to get you into your first home.
From there, rates will likely tick back up should you move, and you may have to put more money down on your next property. Also, you may not qualify depending on certainly factors. While it isn’t a sure thing, these loans are designed to help you, but you may not fit the criteria, meaning you’ll have to use a conventional loan to finance your home purchase.
If you’re a first-time homebuyer, take advantage of that opportunity and look at all your options and find what fits your situation best. Don’t rush the process as this is an extremely important financial decision and if you bite of more than you can chew, it can become a stressful situation.