loansIf you’re in the market for a new home, navigating the range of home loans to find the one that best meets your needs can be difficult, particularly if this is the first time that you are buying a home. To make things easier, the federal government and most states offer home loans tailored to first-time home buyers. These loans offer attractive benefits that can make the home buying experience both less costly and less restrictive. However, these loans don’t suit every first-time buyer – you should look into what the benefits and drawbacks are before signing up for one of these loans.
What is a first-time home buyer loan?
A first-time home buyer loan is a mortgage tailored to people buying their first home. While definitions vary for what is a first-time home buyer, it is usually someone who has never been listed on a deed as the owner of real estate (you would need to confirm this with the loan provider when looking to obtain such a loan). First-time home buyer loans often require a low down payment (if any), reduced interest, limited fees and the possibility of deferring payments. These types of loans are offered at a federal level by the Federal Housing Administration (FHA) and by most states.
FHA fi rst-time home buyer loan programs offer easier qualifying guidelines than many other loan types, such as allowing for higher debt ratios, lower credit scores (even if your score is under 700), limited down payments (usually 3.5 percent of the purchase price) and reduced closing costs and fees. Many state loans for the first-time home buyer are funded by the federal government. Most offer low interest, comparatively smaller down payment requirements and reduced fees.
Pros of first-time home buyer loans
The comparatively lower restrictions on these loans make them ideal for first-time home buyers, particularly if you do not have a significant amount of money saved for a down payment, you have a limited ability to meet high interest payments and fees, or your credit score is not high enough to qualify for other  loan types. Even if you do have funds saved for a large down payment, the low interest rates on first-time home buyer loans are often too good to pass up. The aim of these loans is to bring the American dream of home ownership within the reach of as many citizens as possible, and they have been a great success in helping families who would otherwise not have been able to buy a home.
Cons of first-time home buyer loans
These loans may not be the best option for all first-time home buyers. In particular, most loan programs for first-time home buyers impose a limit on the cost of the property you’re looking to buy. Often, the loan limit may only be 60 to 75 percent of what you could receive with a conventional loan. This means that your chances of using one of these loans to buy a more expensive property are limited. If, for example, you are hoping to buy a large family home in a middle- to upper-class metropolitan neighborhood, you can probably forget about finding a first-time home buyer loan program that will be willing to lend you the amount of money you need. Some of these loans don’t require you to purchase private mortgage insurance, but you may need to take out insurance provided by the loan program, the fees for which aren’t always as attractive as for private insurance.  Despite these drawbacks, a first-time home buyer loan could still be the most attractive type for you depending on your financial situation and the type of home that you are looking to buy. The most important thing is to get started by contacting a mortgage partner before you begin your search. Call me for an appointment Peter DeFusco 508-678-1166.