A Guide on Home Loans For First Time Buyers

January 24, 2020 | Mission Fed

Family making dinner in the kitchen.

What First Time Buyers Need to Know About Home Loans

Buying your first home is one of life’s most satisfying moments. It’s a big deal, worthy of celebration, balloons, and of course, a rousing housewarming party. But, before you start whipping up the fresh guacamole and inviting your new neighbors to celebrate, there are a few logistical hoops you will have to jump through when going through the process of homeownership.

First-time home buying is an enormous financial decision — one that deserves to be treated with due diligence and plenty of research.

What Kind of Loan Suits You?

If you are a first-time buyer, you will likely be taking out a significant mortgage loan. This might be your first interaction with loans of this kind and scale. Don’t worry. There is a plethora of information out there that can help you make the best decision to suit your needs, your financial circumstances, and your geographical region.

Understanding Mortgage Program Options

When researching home loans for first-time buyers, there are a multitude of financial incentives and assistance programs to help you navigate the realities of the housing market.

  • Credit Unions – More and more first-time buyers are choosing to become members of credit unions and forgo a traditional bank loan. In fact, since 2006, the number of mortgages offered by credit unions has increased fourfold.
  • Banks – You can absolutely obtain a mortgage from a bank. However, banks may charge their loan-recipients higher interest rates and fees.

A variety of home-purchasing loan programs are available to first time home buyers, first responders and educators, and veterans.

First-Time Home Buyer Programs

There are three common first-time homebuyer programs readily available. These include:

  • Federal Housing Administration (FHA) Loan
  • U.S. Department of Agriculture (USDA) Loans
  • Good Neighbor Next Door Program

FHA

Perhaps the most common is the FHA loan which has been in existence since the 1930s. FHA loans help first-time homebuyers with down payment by insuring the loan. The initial down payment costs may seem scary. For many people, it is likely to be the single biggest financial investment they have ever made. With FHA, a down payment can be as low as 3.5% of the purchasing price.

USDA Loans

The USDA offers a variety of loans for first-time landowners. While the name might suggest that you would need to buy a working farm (animals and all), this is actually a common misconception. The incentive aims to drive the economy in rural areas, so if life in the countryside is for you, then this incentive might be your golden ticket.

Good Neighbor Next Door

While the name might sound like the dream-child of Mr. Rogers, this incentive is specifically for first-time buyers and backed by the U.S. Department of Housing and Development (HUD). The incentive offers 50% off home prices in what are deemed “revitalization areas”. These are asset control areas, pinpointed by Congress, where rapid development and urbanization are underway.

This offers new home buyers the opportunity to buy into a growing community and truly shape a neighborhood in an unprecedented way.

Understanding APR

When it comes time to pay back your mortgage, having a solid understanding of annual percentage rates (APR) can help you make the right choice. Your APR decides how much interest you will have to pay over the lifetime of your loan. The two types of APR you will come into contact with are:

  • Fixed APR – With a fixed-rate loan, you do not have to worry about fluctuating interest rates set by the Federal Reserve. You know exactly how much interest will accrue each year, and you can calculate the total cost of the loan.
  • Adjustable Rate Mortgage (ARM)An interest rate on an ARM adjusts periodically depending on your term. With adjustable APR, you can lower your interest rate by paying off your loan ahead of schedule. The downside is, that your interest rate is subject to the markets and could increase.

The Keys to the Home

With a wide range of incentives and loans available, it can be hard to know which will fit your needs. If you are looking to purchase a home in San Diego, then choose a credit union that understands the parameters of your area.

Mission Fed’s expertise will be invaluable here, and their local relationships are likely to benefit you in finding opportunities available.

If you are looking to learn more about homeownership or are ready to buy your first piece of real estate, Mission Fed Credit Union can help. First-time home buying can be intimidating. Have a team behind you that can guide you throughout the entire process. To find out how to get approved for a home loan, visit our website or call one of our lending experts today.

The content provided is intended for informational purposes. Mission Federal Credit Union disclaims any liability for decisions you make based on the information provided. References to any specific commercial products, processes, or services, or the use of any trade, firm, or corporation name in this article does not constitute endorsement, control or warranty by Mission Federal Credit Union.

Sources:

Forbes, Homebuyers finding a home at credit unions, https://www.forbes.com/sites/sageworks/2015/01/11/homebuyers-finding-a-home-at-credit-unions/#50361d723ac6

Department of Housing and Urbanization, FHA, https://www.hud.gov/buying/loans

NerdWallet. 8 First-Time Home Buyer Loans and Programs. https://www.nerdwallet.com/article/mortgages/programs-help-first-time-homebuyers

NerdWallet. Adjustable-Rate Mortgages: The Pros and the Cons. https://www.nerdwallet.com/blog/mortgages/pros-cons-adjustable-rate-mortgages

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