First time buyer home loans can offer a variety of benefits and there are several different programs that you can consider. Some of the programs come from the government, including HUD, VA, and FHA loan options. Since you have several options to consider, it’s important that you understand each option and the pros and cons it has to offer. Take a closer look at the available loans so you can make an informed choice when you’re ready to purchase your first home.
First Time Buyer Home Loans – Understanding the Pros and Cons of Different Loan Options
One of the most popular loan options for those buying a home for the first time is the FHA loan. This is a loan subsidized by the government and most of these loans require you to make a down payment of 3.5% on the home purchase price. The loan offers a reduced form of PMI, which is known as MIP or mortgage insurance premium. This requires 1.5% of the amount in escrow when closing and then for the first five years of your loan you’ll pay 0.5% monthly as well.
One of the pros to FHA loans is that they are more lenient when it comes to your credit score. Even if you have a score under 700, you can often be approved for a loan. However, you will need to show good credit in the past few months before applying for the loan. The only problem with these loans is that the requirements the homes have to meet can be a bit strict and they must be approved by a FHA inspector.
HUD Auction Bids For First Time Buyer Home Loans
Another of the options is a HUD home, which means you’ll need to purchase this home at an auction. Usually you’ll need an agent to make the bids, you must have a letter of prequalification, and an earnest deposit as well. Down payments are fairly low, which is one of the main pros. Another big pro is that repairs that need to be done are usually financed by HUD as well.
There are cons to consider with HUD loan options as well. One con is that the homes usually sell for pretty high because of all the competition. It’s also easy to bid too high and go over the value of the home.
Zero Down Loans
For those looking for first time buyer home loans, zero down loans do exist. Many people purchasing their first home don’t have a lot of money to put down on the home. It’s possible to get loans that don’t require anything down and some will offer financing to cover the closing costs involved as well. Basic loans usually require 5-20% of the home’s purchase price down before the loan goes through. You don’t have to worry about this with this type of a loan.
One of the pros to zero down loans is that you don’t have to come up with thousands down and you may not even have to pay closing costs. However, one of the cons is that the guidelines can be very strict and you’ll also purchase a home and have no equity in it in the beginning.
This is just a look at some of the options available to you when you’re looking for first time buyer home loans. Look carefully at the pros and cons of each option. Then you can make a decision that is based on knowledge.