Making the decision to buy a new home is one of the most important you will make in your life, both financially and accountably. This stressful decision can be exacerbated even more by the overwhelming amount of information available about home purchases and mortgages. Both first-time homebuyers and experienced homeowners alike can become frustrated with the constant changes to mortgage approval standards and additions of programs on the market. A homeowner who acquired a loan 10 years ago may find that particular program is no longer offered or that the qualification standards and approval processes have changed. Although it may seem daunting at first, the mortgage industry and housing market have actually taken a turn for the better, and the many mortgage programs available today are easier to obtain and more affordable than ever.
If you’re a first-time homebuyer, you likely have many questions, the least of all being, “where do I start?” Many mortgage brokers and banks will be able to offer you a home loan with good terms, but it’s a wise decision to shop around for the best cost and terms. No two buyers are alike, and therefore no two mortgages, and mortgage lenders, are alike. The customary fees associated with mortgage loans will vary from lender to lender. Also, mortgage rates will often fluctuate among lenders. More conservative lenders and banks are sometimes able to offer lower rates because they only accept top-tier borrowers. Lenders who will loan to “riskier” buyers may charge slightly higher rates because the mortgages are less secure for investors who eventually buy the loans in the form of Mortgage-Backed Securities.
First-time homebuyers are sometimes considered riskier investments to lenders because they may lack substantial assets or have average or lower-than-average and blemished credit. Years ago, these characteristics would have disqualified a borrower, but thanks to the many lenient mortgage programs now available and less strict lending processes thereof, buyers like this now have a shot at homeownership.
One of the enduringly favorite mortgage programs is the FHA loan. This loan is insured by the Federal Housing Administration, which makes it possible for qualified lenders to loan to riskier applicants, such as first-time homebuyers. In fact, the FHA loan was created to help alleviate the housing market’s distress in the 1930s which was caused by the Great Depression. During that time, permanent housing was so unaffordable, less than 25% of Americans owned their homes. Mortgages then came with high down payments up to 50% of the home’s purchase price, unaffordable rates, and unreachable terms. To help improve the housing market and the overall qualify of life in the U.S., the FHA introduced the low-down payment FHA loan to the market. Since then, the FHA loan has remained a favorite due to its consistent affordability and lenient terms.
The FHA loan might be good for you if you’re a first-time homebuyer who is just entering the workforce and starting a family. Millennials are quickly becoming the primary buyers in today’s housing market, and these buyers are typically just finishing school, beginning their careers, and starting families. Most millennials aren’t able to build a large savings due to the rising cost of living, healthcare, and education, so they may not have the necessary funds for a down payment on a house, even though they can afford monthly mortgage payments. The FHA loan only requires 3.5% down, which is substantially less than some competing loans’ mandatory down payments. And for those who don’t have the funds on-hand, they can receive the amount as a gift from family, employers, or other approved organizations. The gift can even come from multiple sources.
Not only does FHA feature affordable down payments, they also accept borrowers with lower credit scores and blemishes such as past collections, bankruptcies, and charge-offs. Millennials who have spent their adult lives attending school may not have built any credit. Or, they may have established some credit when they were younger and let it default, resulting in collection accounts and derogatory marks on their credit reports. FHA mortgage lenders will overlook these past negative credit events and lacking credit. Borrowers with credit scores as low as 620 can be approved for a home loan. Acquiring and paying a mortgage on time will greatly improve your credit so you’re able to make future purchases.
Potential first-time homebuyers need not be discouraged or overwhelmed when making the decision to purchase a home. Although there are a myriad of mortgages available, there is one out there that will perfectly suit your needs. A worthy contender is the FHA loan which is great for first-time buyers or those who have a few extra hurdles such as derogatory credit marks and limited assets. This government-insured loan program ensures that worthy applicants can acquire a fair loan at the most affordable cost possible. If you’re in the market for a new home, you should research your local lenders to see who is best for you.<< Back to the list.
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Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice.