With rates on the rise, you might be looking to fast-track your purchase by getting a mortgage. Locking in a rate now protects you from rate increases in the future, but it can take time and effort.
Obtaining a mortgage is a crucial step in purchasing your first home, and there are several factors for choosing the most appropriate one. While the myriad of financing options available for first-time homebuyers can seem overwhelming, taking the time to research the basics of property financing can save you a significant amount of time and money.
Understanding the property’s market and whether it offers incentives to lenders may mean added financial perks for you. And by closely examining your finances, you can ensure that you are getting the mortgage that best suits your needs.
A mortgage is a loan used to purchase or maintain a home, land, or other real estate types. The borrower agrees to pay the lender over time, typically in regular payments divided into principal and interest. The property then serves as collateral to secure the loan.
Conventional loan – Best for borrowers with a good credit score. A conventional mortgage is provided by a private bank, credit union, or online lender. These loans tend to have fairly strict eligibility requirements and higher down payments.
Jumbo loan – Best for borrowers with excellent credit looking to buy an expensive home. Jumbo mortgages are home loan products that fall outside FHFA borrowing limits. Jumbo loans are more common in higher-cost areas such as Los Angeles, San Francisco, New York City, and the state of Hawaii, where home prices are often on the higher end.
Government-insured loan – Best for borrowers with lower credit scores and minimal cash for a down payment. As the name suggests, a government-insured loan is “backed” by the government to guarantee repayment to the bank should you default on your mortgage payment.
Fixed-rate mortgage – Best for borrowers who’d prefer a predictable, set monthly payment for the duration of the loan. If a mortgage is a fixed-rate mortgage, it means that the borrower (the debtor) and the lender (the creditor) agree to the interest rate ahead of loan disbursement, and that rate will remain the same (hence a fixed rate) for the duration of the loan term.
Adjustable-rate mortgage – Best for borrowers who aren’t planning to stay in the home for an extended period, prefer lower payments in the short-term and are comfortable with possibly having to pay more in the future.
Finding the right mortgage for your needs can be challenging if you’re looking at it from a first-time homebuyer’s perspective. Financing options can also be overwhelming for first-time homebuyers, so take your time understanding and deciding how much you need and then find the right lender. If you can afford to put down a substantial amount or have enough income to create a low Loan-to-Value ratio, you will have more negotiating power with lenders and the most financing options. If you push for the largest loan, you may be offered a higher risk-adjusted rate and private mortgage insurance.
With extensive experience in real estate, I’m here to guide you through all your options. As Middle, TN’s leading real estate agent, I offer unparalleled expertise for your property journey.
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