Which Mortgage Is Best For A First Time Buyer

Dated: 08/11/2016

Views: 218

If you're a part of the population looking for a new home these days, congratulations! There's never been a better time to buy. Once you've found it, be sure it meets your budget, and be sure it has the location and amenities you want. Oh, and there's one more thing, be sure to find the right mortgage to finance it. 

If you're a first time buyer, you might be floundering around absorbing all of the advice you'll get on lenders. You're green on home loans since you've never had one before; of course you are. Today, we look at two different options for you Mr./Ms. First Time Buyer. The FHA Loan, and the USDA Loan. 

The mortgage market offers several different options to home buyers. FHA and USDA both will have a low downpayment % for you, but outside that, there are some differences in the two loans to consider. Both FHA and USDA mortgage options have pros and cons:

  • No downpayment: USDA loans only; FHA is 3.5 percent

  • Location freedom: FHA primarily; USDA is restricted

  • Income limitation: USDA only; FHA has no caps

  • Mortgage Insurance Premiums: USDA is cheaper

  • Rebound buyers: FHA is more flexible after foreclosure

Basically, as the information above states, one will restrict where you can buy, and the other does not; one has income limitations, the other does not.  Both use homeowner-paid mortgage insurance premiums to keep  home loan programs viable for future home buyers. USDA will have the lesser of mortgage insurance premiums of the two.  The FHA upfront mortgage insurance (which will be financed into your loan balance) premium is 1.75 percent and the monthly fee is typically 0.85 percent of the loan balance, divided equally into twelve installments and included with each mortgage payment. With USDA having a lesser premium of the two loans, below is an example of the savings with USDA over FHA:

Johnson City Homes

There is no stated maximum loan size for the USDA loan program. The amount you can borrow, rather, is limited by your household's debt-to-income (DTI) ratio, the comparison between your monthly debt payments and gross income. For instance, a home buyer who makes $6,000 per month and $2,000 in monthly debt payments has a DTI of 33 percent. The USDA typically limits debt-to-income ratios to 41%, except when the borrower has a credit score over 660, stable employment, or can show a demonstrated ability to save.
All of this information can be confusing, we know. If you're in the market for a home loan as a first time buyer, call us! We can take the guess work out of understanding where to start. We have qualified, trusted partners who will help us with your situation, and find the best outcome for your situation. Call us at (423) 433-6517, or simply stop by the office inside Keller Williams Realty at 1033 Hamilton Place in Johnson City. Your first home, can be your BEST home!

To search for your dream home, go here: Johnson City Homes.

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Rayne Price

Holding a BS in Environmental Science, and MA in Education, real estate was not Shields Team Buyer Specialist Rayne Price's first career choice. It was only after encouragement from his wife and a cl....

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