It can be a daunting task to choose the right home loan if you are a first-time buyer. Comparing some data across all the different types of loans can help people make the right decision for themselves and their families based on their circumstances. Here are some key factors to consider.
Many potential homeowners find that they need a 20 percent down payment to qualify for a conventional mortgage. In some very particular circumstances, people may be able to qualify with less than 20 percent down if they agree to buy mortgage insurance until 80 percent equity is obtained. People with a credit score lower than 620 often have a hard time qualifying, and some lenders require an even higher score. Occasionally, there may be a penalty for prepaying the loan.
Generally, people need a credit score of 580 to qualify for a Federal Housing Authority (FHA) mortgage. These loans often require a credit score of only 580. Sometimes, lenders will consider a credit score under 580 with a 10 percent down payment. You can only have one FHA loan at a time, so it can be difficult to buy a new home while you still are paying on your current FHA loan.
Most members of the military, including the National Guard, can qualify for a United States Veterans Administration (VA) mortgage. Additionally, spouses who had their mates die in the service or from a service-related disability may qualify for VA mortgage loans. You may not need any down payment if you are eligible for a VA mortgage, and you do not have to pay mortgage insurance. Making a down payment of 10 percent, however, decreases the cost of your loan. Generally, lenders want to see a credit score of 620, but some will go lower. Additionally, potential homeowners must prove that they have the income to pay the mortgage.
Another option is a United States Department of Agriculture (USDA) mortgage. People may qualify for these loans with no money down. These loans are designed for low and very-low income residents. You must purchase a home in selected rural and suburban areas, and your monthly payment cannot be more than 29 percent of your monthly income. Generally, those with credit scores higher than 640 can be approved quickly while those who have a lower rating can qualify if they have kept their rent and utilities current for at least 12 months.
Whether you are buying or building your first house, the dream of owning your own home is possible when you find the right type of mortgage. Use this information and your own ingenuity to find solutions that work best for you and your family.