Top Loan Programs Available for First-Time Homebuyers: Part 1

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Many first-time homebuyers are entering the real estate market this summer amidst the COVID-19 pandemic in order to acquire a piece of the American dream: homeownership. What many are realizing is that mortgage interest rates have become more favorable than in years past. As a first-time homebuyer, you may too find yourself competing with other buyers in a sellers’ market – where home prices have increased, and inventory is small. However, if you find your budget is tight, here are the best loan programs to help you buy a home for your family.

FHA Loan Programs

The Federal Housing Administration (FHA) has several loan programs for low- to moderate-income and low credit borrowers. An FHA loan is a popular choice for first-time homebuyers due to the government backing a certain amount of the loan that a borrower takes from a lender. Lenders may allow you to take out a mortgage with a low down payment of 3.5 percent and a credit score of no less than 580. But, if your credit score falls below the minimum, you may still be eligible for an FHA loan with at least a 10 percent down payment.

If you’re considering buying a home that needs renovation, you may also look into an FHA 203(k) loan. This type of loan will allow you to take out a single loan to buy and renovate a home at the same time.

While FHA loans will allow you to take out a mortgage with a low down payment, keep in mind that you will also need to pay an upfront Mortgage Insurance Premium (MIP) which usually costs equal to 1.75 percent of the loan amount. You’ll also have an annual MIP that will be part of your monthly mortgage payments. MIP protects the lender if you can no longer repay the loan you take.

Fannie Mae and Freddie Mac Conventional Loan Programs

Taking out a loan from a conventional loan program, which are backed by either of the two government-sponsored enterprises (Fannie Mae and Freddie Mac) is worth considering if you have a good credit score of 620 and above, a debt-to-income ratio (DTI) lower than 43% and you would like to put down a lower amount. If you’re eligible to take out a conventional loan, you have the option of putting on a down payment for as low as 3 percent. With these types of conventional loans, you also can borrow up to the $510,400 conforming loan limit in most states set by the Federal Housing Finance Agency (FHFA).

Conventional loans typically have stricter lending requirements because they’re not secured by any government agencies that offer housing programs. Lenders may require you to put a higher down payment if your credit score doesn’t meet their eligibility.

If you have a credit score of 700 or more and you can comfortably afford a larger down payment, you could get much better interest rates and lower mortgage insurance.

When taking out a conventional loan with a low down payment, you will also take a Private Mortgage Insurance (PMI) that will be added into your monthly payments. Some lenders may require you to pay an upfront PMI instead as part of your closing costs. The amount of PMI you’ll have will depend on several factors including your down payment loan amount, and credit score. Conventional lenders require PMI if a borrower cannot afford a 20 percent down payment. Like MIP, PMI also protects the lender in an event that you can no longer repay your loan.

Get in touch with an RPM Mortgage loan advisor today!

FHA and conventional loans, in general, are the two most popular loan programs for first-time homebuyers. If you want to know more about the loan options available to you, an RPM Mortgage loan advisor can help you. Get in touch with us today to learn more about your options.

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