What Type Of Mortgage Is Best For First-Time Buyers?


If you are a first-time homebuyer, you might be wondering how to find the best mortgage loan for your situation. Fortunately, there are many types of loans geared toward new home buyers. Programs like VA, FHA and conventional loans make it easier for you to get your first mortgage. We offer many of these loan types at Fairway and welcome any and all questions you may have regarding your eligibility and how to get started with a preapproval. This brief guide provides an overview of the major loan types available to first-time homeowners.

Conventional Loans for First-Time Buyers

There are two types of conventional loans, conforming and non-conforming. Conforming loans meet certain criteria such as loan limits from Fannie Mae and Freddie Mac. Lenders offering conforming loans often package them together and then sell them on the secondary market. The maximum loan limit for a conventional conforming loan is $647,200 for 2022. However, designated high-cost areas have higher limits.

The lender underwriting a non-conforming loan sets its own limits. These loans cannot be resold on the secondary market.

Federal Housing Administration (FHA) Loans

The Federal Housing Administration (FHA) offers loan products with lower down payments than conventional loans. These are excellent opportunities for first-time buyers who qualify for them. In some cases, you could pay as little as 3.5% on a down payment. Typically, these types of loans have more lenient credit requirements as well.

Keep in mind that FHA loans come with a mortgage insurance premium. Mortgage insurance protects the lender if you are unable to pay your loan at some point in the future.

Veterans Affairs (VA) Loans

The U.S. Department of Veterans Affairs (VA) provides many benefits for active service personnel and veterans. It guarantees VA loans, which means that it guarantees the mortgage but does not make the loan itself. Instead, qualified lenders process VA loans, typically with favorable terms such as no down payment.

First-time homeowners often qualify for VA loans more easily than conventional loans. The VA offers a certificate of eligibility that you can use to apply for a mortgage loan.

Good Neighbor Next Door

Good Neighbor Next Door (GNND) is a program sponsored by the U.S. Department of Housing and Urban Development (HUD). It provides a deep discount of up to 50% for homes bought in designated “revitalization areas.” Homeowners have to commit to living in the home for 36 months in order to qualify for assistance.

USDA Loan Programs

There are several types of USDA loan programs. They offer both direct loans and loan guarantees. In a loan guarantee program, the USDA guarantees a mortgage payment to participating lenders. This is similar to VA and FHA-backed home loans. As a result, if you qualify you for a lower mortgage interest rates and may not have to pay a down payment. However, you have to pay mortgage insurance premiums that guarantee the lender some compensation should you default on the loan. Low and very low-income applicants often meet the thresholds needed to qualify for these loans. Subsidized interest rates can be quite low.

Now that you understand the major home mortgage loans available to first-time buyers, it’s time to make an appointment with a Fairway banker. Let us help you get into your dream home with the best possible mortgage loan for your family.

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