An Introduction to First-Time Home Buyer Loan Programs

Buying your first home? It’s an exciting process, but one that can also be stressful and confusing, especially when it comes to financing. Luckily, there are first-time home buyer loan programs available to help you afford a house that suits your needs and budget. Here are the basic facts you need to know about first-time home buyer loan programs.

Conventional home loans

When buying your first home, a conventional home loan is one of the most basic mortgage loans you have to choose from. These loans are also called conforming loans since they meet the strict guidelines set out by Fannie Mae and Freddie Mac. If you have a good credit score and a down payment of at least 10 percent, these loans are an ideal option, but they’re also available even for those who can only afford a 3 percent down payment. These loans include:

  • Fannie Mae’s HomeReady Loan & Freddie Mac’s HomePossible Loan: Down payments start at 3 percent and offer flexible terms for low-income buyers. In some cases, these loans offer up to a $500 rebate for qualified buyers.
  • The Conventional 97 Home Loan: This is often the most economical way to buy a home, requiring only a 3 percent down payment.

FHA loans

U.S. Federal Housing Administration (FHA) loans are ideal for buyers who need low down payments and have poor credit histories. Since it’s riskier for institutions to lend to these buyers, an FHA loan mortgage insurance premium (MIP) is required. While this is an additional expense, it can get you into a home quickly even if you have poor credit. In addition to regular mortgage payments, expect to pay the following MIP costs:

  • Upfront Mortgage Insurance Premium: 1.75 percent of the loan amount.
  • Annual Mortgage Insurance Premium: 0.85 percent of the loan amount.

VA loans

U.S. Department of Veterans Affairs (VA) loans offer amazing benefits that you can’t get any other way. These loans offer 100 percent financing for both veterans and active members of the U.S. military. VA mortgage rates are consistently the most attractive for common loan types, which helps those who have served or are serving our country gain access to a home of their own.

USDA loans

U.S. Department of Agriculture (USDA) loans are available in rural areas and low-density suburbs. It’s an attractive option similar to the VA loan in that you don’t have to put any money down on your new home in some cases, and you’ll receive 100 percent financing as well as lower mortgage rates than you’d have access to with other loans. Keep in mind that these loans are only available if you’re buying in land that’s designated “rural” according to USDA standards, which usually only applies to areas with populations of less than 20,000.

It can be challenging to navigate the process of buying your first home. If you have the right realtor on your side to skillfully guide you through each step, including financing, you’ll find it much easier to get into the perfect home at a price you can afford. Contact Carpenter Real Estate to discover more tips to help you as you buy your first home.