First-Time Home Buyers Guide: On Deciding Which Mortgage Programs Best Suit Their Needs
Picking The Best Mortgage For Your Needs
First-time home buyers do not have the experience that seasoned home buyers possess, and have likely never applied for a mortgage let alone gone house shopping. Among the most common questions first-time home buyers ask is “what is a mortgage?” First-Time Home Buyers Guide Which Mortgage Programs Suit Them. NSH Mortgage has the knowledge and tools to help first time buyers find the best mortgage.
A mortgage is a loan given for the purchase of real estate. You can buy a house and applied for a mortgage. Yet, you would not use a mortgage to buy a car.
Mortgage loans aren’t all the same, either. They can be customized to meet your needs as a buyer. Furthermore, mortgages can be generally placed into five main categories.
- Conventional mortgages in Florida
- FHA mortgages in Florida
- VA mortgages in Florida
- USDA mortgages in Florida
- Jumbo mortgages in Florida
Each category of loans has its benefits and a mortgage loan officer can help you choose between them. However, you can narrow your mortgage decisions based on your different needs in a home loan.
This is a brief guide to help you choose the mortgage loan and mortgage company that is best for you.
1. What Is The Size Of Your Down Payment?
The bulk of your down payment will influence the mortgage loans from which you can choose. The larger your down payment, the more options you will have. It’s commonly believed that, to buy a home, a down payment of 20% is needed.
This means that for every $100,000 in the cost of the home, you would have to bring $20,000 in cash to your closing. The truth, though, is that you do not need 20% down to buy a home. You can purchase a home with 3.5% down using a FHA mortgage; and with zero money down using a VA mortgage or a USDA mortgage.
The reason why most people assume that a 20% down payment is essential is because of a rule within the conventional mortgage category which states that, with less than 20 percent down, home buyers require paying monthly private mortgage insurance (PMI).
Mortgage insurance is not a bad thing. The size of your down payment will be a personal decision.
When you make a large down payment, you will need to borrow less money from the bank, which will reduce your monthly mortgage payment.
This can be helpful if your household budget is somewhat tight. However, when you prepare a expansive down payment, you risk diminishing your bank accounts of their savings. This, too, can pose a risk, especially if you lose your job or if a similar emergency occurs.
Down payments are not easily recoverable. Your savings accounts, though, can be liquidated at a moment’s notice. You do not need 20% to purchase a home. You only need the minimum required by each category.
2. What Is Your Credit Score?
As a mortgage borrower, your credit score is a primary qualifier for nearly every loan available. When you have a high credit score, you can retrieve the complete list of loans. But if your credit scores are low, your access is limited.
Therefore, your credit score will help determine which mortgage loan is best for your needs.
Credit scores range from 300-850, which 850 being the highest possible score. Also scores over 740 are considered excellent.
With a credit score of 620, you can get access to most available mortgage loans. Although, with conventional mortgages, borrowers with lower credit scores are required to pay higher mortgage rates. Therefore, borrowers with lower credit scores may be better suited for FHA, VA, and USDA loans, none of which judge homebuyers for having an average or below-average credit scores.
If your credit scores are lower than what you expect (or want), the good news is that credit scores can be improved, sometimes rather quickly. Here are five ways to improve your credit score, plus another method which takes advantage of “authorized accounts,” enabling you to utilize your parents’ credit scores to grant yourself a boost.
Note, that mortgage lenders use a different credit scoring system than credit card companies and auto loan vendors, so if you have not seen your “mortgage credit score,” ask your mortgage lender to share it with you as part of your home loan application process.
3. What Are Your “Special” Qualifications?
As a home buyer, there is a broad selection of mortgage loans from which to choose from. Still, some program can be restricted, based on borrower traits. For example, the VA mortgage loan is supported by the Department of Veterans Affairs and attainable to military borrowers and surviving spouses, only.
If you have not served in the military, or have not been married to an individual who worked in the Armed Forces, or the National Guard, or the Reserves, you cannot use the VA mortgage loan for your upcoming home purchase. As another example, the USDA loan, which is provided by the U.S. Department of Agriculture, is obtainable in areas where populations are not dense; and, only to borrowers of modest means buying modest homes. You cannot use the USDA loan to purchase a McMansion, for example; and, you cannot use the USDA loan if you are considered wealthy, based on your annual income.
Another example of a “special qualification” loan is the HomeReady™ home loan, which is associated to the conventional mortgage program. HomeReady™ loans offer lower mortgage rates, discounted mortgage insurance, and relaxed approval standards. HomeReady™ is available in low-income census tracts; to borrowers who earn 20% less than their typical neighbor; and, in areas which have been declared a federal disaster zone.
By HomeReady™, home buyers in gentrifying districts can usually gain access to a discounted mortgage rate, regardless of household income. The same is true for borrowers whose tax returns reflect a lower income than their neighbors.