We all dream of having that very first real estate investment that we can call home. However, many people stop before they start the process because of the overwhelming task ahead of them.
We don’t need to worry about that. We will walk you through the basics of property financing and the secret behind the significant savings we could get for our time, money, and effort for the deal. With this, we can make the most out of our first and future purchases.
Notes to Consider:
- Getting a mortgage is one of the most important steps we have to consider when we are putting up investment in our first home. Choosing the best possible option for us is the key.
- All aspects of our finances are equally important for lenders so we have to make sure that our credit reports will fall on the positive side of things. Also, our income, debts, assets and even our credit history will be evaluated so be ready.
- It is essential to know if our mortgages will fall under a fixed or floating rate. We also have to consider the years we will be spending with our mortgage.
- It is worth checking with FHA if we are eligible for a more strategic term for our mortgage loan, so be on the lookout for that.
Types of Loans
Most conventional loans are tagged as not guaranteed or insured by the federal government. They usually have higher requirements such as better credit scores, low income-to-debt rations, and a bigger downpayment. However, they also can be more cost-efficient than most guaranteed mortgages.
- FHA Loans
The FHA or Federal Housing Administration is a branch of the United States Department of Housing and Urban Development that mortgage programs to the majority of its citizens. It is one of the most common options experts advise their clients, especially for those first-time buyers.
It typically has lower downpayment rates compared to the others on the market and it has more straightforward qualification metrics. Aside from the downpayment, it also has fewer credit requirements and we can arrange our downpayment in exchange for paying the mortgage insurance premium.
- VA Loans
The United States Department of Veterans Affairs or VA guarantees our mortgages from most lenders. With that said, it usually offers favorable loan terms to the borrower, such as minimum or no down payment at all.
It is recommended that we first see if we can file a request for eligibility from the VA before we apply for our mortgage. Once everything went through and we are deemed eligible, we will receive a certificate of eligibility from VA and we can now proceed with our loan application.
Local and State governments also offer various programs and sponsorships, so be on the lookout for these as well.
Difference Between Fixed and Floating Rate
A fixed-rate mortgage is defined just like the name implies, fixed rates all across the board. This simply means that our loan rates will not change during the term of our loan. This is helpful since we will know exactly how much we will pay for our loans plus, the interest rates on fixed rates are usually on the lower side.
We can take advantage of this situation if we found ourselves decent loan terms with low-interest rates. This simply means that our premium will typically stay the same until the end of our term.
A floating-rate mortgage, on the other hand, is favorable to those people who are expecting higher income as they climb up on their career ladder. It generally has lower introductory rates in the first part of the loan term. This can go either way since it is not guaranteed if our income got stuck at a certain percentage after a few years.
Another risk that is worth mentioning is the market interest rates associated with floating rates. There could be a rise or fall of the and it can significantly affect the terms of our loan if the trend in the market continues to rise.
It is no wonder why many first-time borrowers are having a hard time dealing with their first mortgage loan. The key factor to avoid this would be taking our time and finding the right fit for our needs.
Step back a little and contemplate on how much we can actually afford. Balance out the rates that we will most likely face in the future. Another important thing we need to consider would be asking for help from professional mortgage brokers. They know the process and they can present us with viable options that might be favorable to our situation.