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Obtaining a mortgage is the most crucial step for middle-class people looking forward to buying their first home. Several factors are to be considered for choosing the appropriate one. While the myriad financing options available for first-time homebuyers might seem overwhelming, researching the basics of property finance can save much time and money. This article outlines some mortgage tips and tools that homebuyers must know to make their big purchase.
First-time homebuyer loan requirements
One needs to meet several requirements to be approved for a mortgage. These require to vary depending on the type of loan a person is applying for.
First, one needs to meet the definition of the first homebuyer, which is much broader. A first-time homebuyer is a person who has not owned a principal residence for at least three years, a person who has only owned a house that is not permanently affixed to a foundation, a single individual who has only owned the residence with a spouse, or a person who has only owned a property non-complying with the building codes.
The other mortgage tips and tools one needs to know before applying for a first-time homebuyer loan is that he should have proof of income for at least two years sufficient to repay the mortgage and also a minimum credit score as specified by banks.
Different types of loans:
- Conventional Loans:
Conventional loans are fixed-rate mortgages not insured or guaranteed by the federal government. Due to strict requirements- a bigger down payment, higher credit score, potential for private mortgage insurance (PMI), and lower debt-to-income (DTI) ratios- it is difficult to qualify for conventional loans.
Conventional loans are further defined as conforming loans or non-conforming loans. Conforming loans comply with guidelines, like loan limits that are set by government-sponsored enterprises (GSEs). Whereas, for nonconforming loans, guidelines are set by the lending institution that underwrites the loan (portfolio lender).
- Federal Housing Administration (FHA) Loans:
Part of the U.S. Department of Housing and Urban Development (HUD), the FHA offers several mortgage loan programs to the citizens. An FHA loan is easier to qualify for and has a lower down payment requirement. It is necessary for all FHA borrowers to pay a mortgage insurance premium rolled into their mortgage payments.
- S. Department of Veterans Affairs (VA) Loans:
VA loans are guaranteed by the U.S. Department of Veterans Affairs (VA). The loans are not made by VA itself, but it guarantees mortgages made by qualified lenders. These guarantees allow veterans to obtain home loans with favorable terms and conditions. Also, VA loans are much easier to qualify compared to conventional loans.
Conclusion
When looking for home finance for the first time, it can be difficult to sort through all the financing options. The above-discussed mortgage tips and tools will help you determine the best loan option for financing the house. First, the homebuyer should take time to determine how much he can afford and then only look for different financing options.
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