After 10 years of marriage, I’m still enjoying living in the first home I moved into with my husband. Buying a first home can be one of the most exciting events in a person’s life. Before making this important expenditure, people need to first sit down and determine how they will successfully finance it. After all, a home will likely be the most expensive purchase you make in your life. Talk to a loan officer and determine how much money you can reasonably borrow. Then, decide how much money you want to use as a down payment. You also must decide how many years you will finance your home for. On this blog, you will learn about the process of buying a first home with a loan.
Are you shopping around for a mortgage and between an FHA and a conventional loan? It will help to know the differences between them so you can decide which is best for you.
One of the things that makes an FHA loan unique is that anybody who qualifies for it will get the exact same loan terms. You don't have to worry about shopping around much with FHA loans because of this, which simplifies the application process. FHA loans also tend to have historically low interest rates, which can make it a great choice for those that are looking to save money.
When it comes to mortgage insurance premiums, known as MIP for FHA loans, be aware that FHA loans will require that you pay MIP for the life of the loan if you provide less than a 20% down payment. You can no longer have MIP removed from the loan when you reach 20% equity, and the only way to get rid of it is to refinance and get a whole new loan.
The terms of a conventional mortgage will depend on things like your credit score, the size of your down payment, your debt-to-income ratio, and other factors that determine your credit history. Each lender may also provide you with different mortgage terms and different interest rates. While the terms of the loan will conform to the Fannie Mae and Freddie Mac guidelines, you may need to shop around and see what different lenders are offering.
Private mortgage insurance (PMI) works differently under a conventional loan since you can get rid of it later. If you've paid into your home and reached 20% equity, or home values have gone up and caused your equity to increase, you can apply to have PMI removed. It means that you don't have to stress about having a 20% down payment to get that benefit that will lead to not paying PMI.
What makes conventional loans different in the appraisal process is that there are not as strict standards when compared to the FHA loan. If you are looking to buy a home that is a bit of a fixer-upper, you may have better luck getting approved with a conventional loan. You can even buy investment properties with a conventional loan since there is not a limitation of using the loan for your primary residence.
Reach out to a mortgage lender for more information about loan programs.