Many first-time home buyers need mortgages explained to them so they make the right choice. Learn about the different type of mortgages out there.
About 40% of homes in America are now completely mortgage-free. Paying off your mortgage and owning your house in full is the new status symbol for Americans.
But if you’re looking to buy a house, you’ll probably need a mortgage. But there are a ton of options out there.
We’re here to get mortgages explained so you can start looking in the right direction. Here are some of the most common mortgages for first-time homeowners. They help you get into your dream home fast, without compromising your financial integrity.
Looking to embrace the country lifestyle? Consider a USDA loan. These loan options were initially designed to encourage the population for more rural areas. It lets you get into a house no down payment at all, as long as you live in a rural area.
But even if you think your dream home might be in an area too populated to count, it’s still worth investigating. Generally homes in towns smaller than 20,000 people qualify, but you can check the exact location to see if it qualifies.
A conventional 97 loan lets you get into a house for only 3% down. You’ll need a credit score of 620 to qualify, but you might be able to get into a more expensive house.
An FHA loan is also designed for first-time homeowners. You’ll need 3.5% down, but only a credit score of 580 or higher.
FHA loans and Conventional 97 loans are designed to ease the financial burden it takes to get into a new house. In both options, you’ll need private mortgage insurance, but they generally have good interest rates.
These options make it easy to get into a house, even if you don’t have a lot in savings.
20% down is the long-touted rule of financial security experts. That’s because, at 20%, you don’t need to pay for private mortgage insurance.
However, the 20% down threshold means you’ll need 30,000 in savings just to get your foot in the door for a $150,000 starter home. For a young couple fresh out of college and likely already saddled in debt, this threshold is hard to meet.
On top of that, renting is generally almost twice as expensive as your mortgage payment. So postponing homeownership just to save up that 20% down payment can cost big bucks in rent.
If you’re looking to get a mortgage loan, check with several different mortgage loan options like Loanpal to make sure you’re getting the best deal.
Piggy-Back Loan With 10% Down
One option you can consider if you already have 10% saved and don’t want to pay private mortgage insurance is a piggy-back loan. In this, you take out a mortgage for 80% of your home’s value, put 10% down, and take out a second loan for the remaining 10%.
If you decide to use a piggy-back loan, you need to make sure the interest on your second loan is lower than the cost of private mortgage insurance.
Get Your Mortgages Explained
It’s okay if you need mortgages explained to you. That’s what smart people do! They ask questions about things they don’t understand, and there’s a lot of different factors and different types of mortgages.
This is just scratching the surface about the different mortgages on the market. So do your research and go in on a deep dive on the different options before you talk to your lender. Trust your gut, and do what feels right for you.
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