Purchasing a home is likely going to be one of the biggest financial decisions you every make. The process of buying your first home can be a challenge. Whether you plan on selling in a few years or staying in the same home for decades, you want to make sure that you find a property that suits both your needs and your budget. You also want to make sure that you have the right financing for your needs. Here are three things that first-time home buyers need to know about taking out a mortgage.
Your Financial History Matters
The first thing that you should do before even looking at available properties is to take stock of your current financial situation. Your financial history will play a major role in determining whether or not you qualify for a home loan and how much you are able to qualify. A few factors that are take into consideration include your credit score, your debt-to-income ratio, your total income, and how much you are able to put down. Being financially healthy is a good indicator that you are ready to own a home and signals to lenders that you are worthy of a mortgage.
Loan Programs Can Help
When it comes to financing, there are a variety of loan types and mortgages to choose from. If you are a first-time buyer, there are also plenty of loan programs that are specifically geared toward your needs. FHA loans are a great option, and you can qualify for one with credit scores as low as 580 and down payments of only 3.5 percent. USDA loans and VA loans are also great options for first-time home buyers who meet the requirements of these programs. There are many other first-time home buyer loan programs that may work for you.
Conforming Versus Non-conforming Loans
Another thing that you may not know if you are purchasing a home for the first-time is the difference between conforming and non-conforming loans. Conforming loans meet specific criteria that allow Fannie Mae and Freddie Mac to purchase the loan while non-conforming loans do not. Most conventional loans are conforming loans, while jumbo loans are a good example of non-conforming loans. Conforming loans are typically cheaper in the long run, but non-conforming loans allow you to borrow more money. Jumbo loans are often required in areas with a high cost of living.
If you are buying a home for the first-time, there are a few things that you should know when seeking out financing. First, your financial history will play a large role in the type of mortgage you qualify for as well as how much you are able to borrow. There are plenty of loan programs that can help first-time buyers, and it's important to look at your options. Knowing the difference between conforming and non-conforming loans is also helpful