Mortgage Options for First-Time Home Buyers

Mortgage Options for First Time Home Buyers


It’s a tough real estate market right now, especially for first-time home buyers. All cash offers, over asking price offers, and multiple offers are beating out first-time buyers at an alarming rate. Being preapproved is not enough to get your offer accepted these days. Buyers need to be well-qualified, have cash in hand, and have an expert negotiator on their side. That’s exactly what Buyers Broker of Florida does for all of our buyers. We work solely for buyers making sure they get the home they want at the price they need.


However, not every buyer, especially first-time home buyers, have cash to make their offer more attractive. Most will need financing of some type. There are several financing programs available for first-time home buyers. Let’s take a look at each of these and figure out which works best for you.


Mortgage Options for First-Time Home Buyers


Conventional Loan


This is the most common type of mortgage funding even for first-time home buyers. They’re more popular than just about any other kind of loan but it is not insured or guaranteed by the government. This is a private lender-backed loan and the insurance is typically paid by the borrower. Typically, 20% down payment is required otherwise the borrower will need to pay private mortgage insurance. This insurance can be canceled or removed once the home meets an 80% to value loan ratio. Jumbo loans may also be available with specific qualifications.


USDA Home Loan


A USDA home loan is an excellent first-time home buyer program. A lot of people don’t even know that this exists. Managed by the US Department of Agriculture, the USDA home loan program targets homes purchased in rural areas. This doesn’t necessarily mean you have to buy a farm or so far out in the boondocks that takes you an hour to get to the grocery store. However, these loans have income limitations so it’s important to check your qualifications. The location of the property and to the population of the area you are looking in typically needs to be under 35,000 people. Buyers need at least a 640 or higher credit score and you may not even need a down payment.


FHA Loan


This is probably one of the most common first-time home buyer mortgage programs. This is provided by the Federal Housing Association through the US Department of Housing and Urban Development or HUD. It’s appealing for many lenders in that if for some reason you can’t pay your mortgage, FHA will typically cover your mortgage, but, that behavior goes with a lot of risk which is why this type of mortgage requires private mortgage insurance to cover in case of a default. Most applicants need a credit score of at least 580 or higher to get the best terms and down payments can be as little as 3.5%.


VA Loan


This type of loan is ideal for veterans, surviving spouses, and all active-duty military personnel. It’s a great option for first-time home buyers with favorable interest rates and no down payment. Borrowers won’t need to pay for private mortgage insurance either and a lot of times the sellers will pay closing costs. There are drawbacks in that, not every home will qualify so you’ll need to verify the home inspection with the qualifications for a VA loan.


Energy-Efficient Mortgage (EEM)


This unique program was created to encourage homebuyers to improve their homes with energy-efficient appliances and materials. They are insured through an FHA or a VA loan and makes it possible, especially for first-time home buyers, to improve the home without increasing the down payment. The cost of energy-efficient improvements are rolled into the primary loan. There are a lot of green improvements that you could make to a home that would be included such as installing double pane windows, improving the HVAC system, and adding new insulation. It’s a great product that can be used under a rehabilitation loan as well for older homes or homes that need a little bit of work.


FHA Section 203(k)


This type of home loan is ideal for buyers looking to purchase a home and fix it up to add value to the property. If you’re looking to do a lot of work to the home either in renovations or remodeling, this loan, with low down payments of as little as 3%, could offer enough money to make the repairs that you need. The funds that you borrow for these home improvements are included in the primary loan and this is a great option for properties that are purchased as is.

Fannie Mae and Freddie Mac


These are mortgage companies operated by the federal government. They are primarily designed to help low and middle-income borrowers with competitive interest rates and low down payments. They are ideal for first-time home buyers that have strong credit but not a lot of cash available for a substantial down payment.


Home Path Ready Buyer Program


This home loan is backed by Fannie Mae and is geared toward buyers interested in purchasing a foreclosed home, short sale, or bank-owned Fannie Mae property. While this is an unusual loan and there’s not a lot of need for it in a seller’s market, it is ideal for first-time home buyers and that borrowers can get up to 3% in closing cost assistance towards the purchase. All homebuyers and borrowers are required to take an online education course in home buying and ownership before qualifying.


Local Programs and Grants


Not every county or city or even state for that matter offers specific programs for first-time home buyers but a lot of them do. It’s important to check with current county options for down payment assistance programs and grant programs that provide money to low and even middle-income first-time home buyers to help buy a home. Most of the loan servicing is done in-house with flexible underwriting and income limits.


Understanding your mortgage options, especially as a first-time home buyer, will provide you with all the available programs that might work for your situation. Talk to your real estate agent about the best option for you. We have several local lenders that we highly recommend for just about any type of loan situation. Let us know what you’re interested in and how we can get you into the home of your dreams in the Orlando real estate market today.


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