What to Expect When Applying for Your First Mortgage Loan

When you are tired of renting properties that belong to other people, it may be time to purchase your own home. Buying your first house is an exciting milestone to reach in your life.

If you have started exploring loan options, you have probably seen dozens of potential programs to consider. One important thing to remember is that some loans are better for first-time buyers while others are more suitable for repeat buyers.

Here are important things to expect when applying for your first mortgage loan.

Look Out For First Mortgage Loan Programs

When you enter the market for your first home, some lenders offer mortgage financing options that target first-time homebuyers.

If you are a low-income buyer looking to buy your first house, you may be able to qualify for down payment assistance. 

Down payment assistance can cover a 3.5% to 5% down payment for first time buyers. While these programs will help low-income buyers successfully purchase their first homes, it’s important to note that fees such as private mortgage insurance (PMI) still accompany payments below 20%.

Financial Health Matters

Before lenders decide anything specific about how big your first mortgage loan will be, they examine your finances. Lenders take three aspects of your financial health into account. A record of your income and savings, your credit score, and your DTI (debt-to-income) ratio will determine how much a bank or mortgage broker will be willing to lend to you.

Before you apply for any mortgage loan, it is prudent to keep your debts paid and credit score high so that you will have a better chance of qualifying for your chosen financing program.

Avoid Private Mortgage Insurance

Most mortgages qualify as conventional loans. Conventional mortgages are non-governmental loans that credit unions, banks, and mortgage brokers offer.

PMI (private mortgage insurance) is an extra monthly fee that home buyers must pay on conventional loans if their down payments are below 20%. Lenders charge PMI to protect themselves if a buyer cannot pay back the loan.

If you choose a conventional mortgage loan, you can save more money by putting down 20% on your home. If you do not have a 20% down payment, you will have to pay PMI until you reach an LTV (loan-to-value) ratio of 80%. At this point, you can request your mortgage provider to cancel PMI charges.

If you are paying your mortgage with an FHA loan, you will have to refinance to a conventional mortgage in the future in order to eliminate PMI charges.

Consider Government Loans

If you have a low income, consider a government-backed loan instead.

These mortgage financing options are a lot easier on low-income buyers looking to get their first houses. FHA (Federal Housing Administration) loans are a popular solution, as down payments can be as low as 3.5%. While an upfront insurance premium and an annual charge apply to down payments of less than 20%, FHA loans do not require as high credit scores, incomes, or DTI ratios as conventional loans.

If you are a former or current service member, you can also qualify for VA (Veterans Affairs) loans, which require no down payment at all.

For buyers who want a home in a rural area, USDA (United States Department of Agriculture) loans offer low-interest rates and no down payments for low-income homebuyers who have good credit scores.

Research Fixed-Rate Loans

There’s a good reason why most homebuyers opt for fixed-rate loans rather than their adjustable-rate counterparts.

Since fixed-rate mortgages do not fluctuate with varying interest rates of the general market, you may save more money long-term than you would with a variable rate. Even if interest rates skyrocket in the future, you can remain confident that your mortgage interest rates will stay at the same initial rate.

When buying your first house, a fixed-rate mortgage may suit you best. Fixed-rate mortgages provide stability to your finances, as you will pay the same amount of money every month.

While adjustable-rate mortgages sometimes offer low rates for the first several years, interest payments could go up considerably over time. Variable loans are best for buyers who can pay off their homes in a short number of years. For 10 to 30 year mortgages, fixed rates are better.

 

There are many factors to consider when getting a mortgage loan. Whether you have a high, medium, or low income, there are plenty of mortgage financing options that will help you become a homeowner.

At Supreme Lending, we guide first-time buyers in their homebuying journeys to the most affordable mortgage financing options available. To find the best loan for your first house, read more about our offered programs today.

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