Mortgage Loans and Down Payment Options for First-Time Homebuyers
- Author: Kelly Cooke
- Posted: 2024-03-21
Traditional down payment options
Setting aside the standard 20% of a home price can be a challenging sum to raise. For many, this figure represents several years of uninterrupted savings. It can be even more difficult if you are just starting out and not earning high wages or paying back other debt.
However, there are ways to work towards building a substantial down payment and make it as painless as possible along the way. One of the best ways to save this amount may be to set aside a certain percentage of your paycheck. Even better would be to set up automatic savings every month. This can reduce the likelihood that you will be tempted to spend money already earmarked for your future home.
Another reason why saving up the traditional down payment is beneficial is because it can save you money in the long run. If you seek a traditional loan and you are unable to put down that large a sum, you will often be required to pay private mortgage insurance until you reach a certain level of equity in the home. This can often mean very expensive payments, sometimes for years, on a home that you already own. And if you have an adjustable mortgage rate, the price you pay can become even more expensive.
First-Time homebuyer programs
If you still encounter challenges to saving up for that elusive down payment, there are other options. If you are unable to pay a significant cost upfront to buy a home, taking part in a first-time homebuyer program may be the perfect choice for you and your family. These programs are commonly administered by the state in which you live. As long as you meet certain income limits, you can have a variety of plans open to you.
Some programs provide you with free money through a forgivable grant. You can then use the funds for your down payment. And yet still, others offer low-interest loans or even low-cost closing costs to ease the financial burden that comes will buying a home.
First-time homebuyer programs can be a great way to get in a home faster than with a traditional home loan. In addition to lower expenses, you can also typically work with a finance specialist who can take you through the entire home buying process. Working with a professional can help ease the stress of buying a home and can help you make great long-term decisions about your financial goal with regard to your real estate purchase.
Special loan types
If your state does not have a great home-buying program, it may help to also consider special loan types such as FHA and VA loans. These loans tend to have favorable interest rates and can save you a significant amount of money over the lifetime of the loan.
FHA loans are offered by the federal government. Should you select this type of loan, you can put down as little as 3.5% of the purchase price of the home. Thus, saving yourself a large portion of money for the purchase of your home. Moreover, FHA loans often offer low interest fixed rates. This can provide you with peace of mind knowing what your mortgage will be over the life of the loan agreement.
Similar to FHA loans, VA loans offer some of the best financial terms for mortgages. These loans require as little as no money down and low closing costs. However, to access these loans, you need to be in the military, a veteran, or have a special designation such as a spouse, child, or widow of a military member. If you have access to these loans, they may be the best option for you to purchase your new place.
Purchasing a home is no small matter. And saving up for a down payment can be equally daunting. Now that you have more information on the types of loans and down payment you may need to save up to get into your new house, you should be well on your way to your first home purchase.
