First Time Buyer Mortgages

Have you recently identified a home you can buy? Weighing your options, you realize that you don't have enough capital to purchase it. What do you do? A mortgage loan is convenient for first time buyers as different financial institutions finance you with a certain percentage.

Before you decide on the mortgage that's right for you, below are some factors you need to consider.

Credit Score

When determining credit worthiness, lenders will usually check your credit score. Bankruptcy or late credit card payments will make your credit score go down. Institutions don't want somebody who is shaky and has signs of inconsistent mortgage payments.

Your credit score can be accessed through credit bureaus such as FICO. Lending institutions will require a personal credit rating as one of the requirements to determine if you qualify for the mortgage. Before applying for a mortgage loan, ensure that you have a good score. For example, a score of 670 at Equifax, one of the American credit bureaus, is a safe score and you stand a chance of the application being approved.

Down Payment

How much can you afford to make as down payment? Down payment is the amount of money you are capable of paying up front. The more down payment you can provide, the less the mortgage rate. You will also owe the institution less on the mortgage taken. Some mortgage loans from different institutions are available with a down payment as low as 10% or less.

Different Loan Types

Before settling on a particular mortgage loan, ensure that you know the various kinds available. The types of loans are:

  • Fixed Rate Mortgages - For these loans, you should have at least a down payment of 5%. They have set interest rates. Here, you should ensure that your credit history has no issues with any previous late loan repayments.
  • Adjustable- Rate Mortgages (ARMs) - They have the lowest interest rates for the first 3-10 years of the loan. However, they adjust downwards or upwards. You need a down payment of at least 5%.
  • Jumbo Mortgages - You are required to have a down payment of at least 20%. For high priced properties, these loans have the lowest rates.
  • Veterans Affairs (VA) Mortgages - These loans are government-backed and are for military members. No mortgage insurance is required and smaller down payments are required.
  • FHA Mortgages - They are government-backed with minimal down payments. FHA mortgages are ideal for people who have issues with their credit scores.

Pros

  • Once you acquire the house, it is an asset which once you are done with the mortgage; you can seek finances with it as equity.
  • With the proper care and renovations, the home value could appreciate, and you could sell it at a much higher price.
  • For FHA loans, they require lower credit scores which make them easier to access.

Cons

  • Some loan payments may drastically change which may make the borrower unable to make the payments which could lead to the lender re-acquiring the home. Such loans include ARMs.
  • As the borrower, once you fall into a financial pitfall, there is a high likelihood that the lender may repossess the home.

Institutions Offering Mortgage Loans

Different lenders have different interest rates. Lending institutions include credit unions, commercial banks, mortgage companies, thrift institutions and the government home loans (offers only VA and FHA loans).

Mortgage loans are a flexible way of buying a home. Most importantly, before applying for a loan, ensure that you have a steady income to facilitate the monthly payment schedules. Also, ensure you make a comparison of different lenders so that you can get the best interest rates.