Loan Options for Buying Your First Home

Buying your first home can be a thrilling experience. There’s just nothing quite like owning your own home, and despite the challenges and costs, it’s almost always worth it. But buying your first home can be intimidating–especially when it comes to choosing the right mortgage.

For first-time home buyers, navigating the home loan marketplace can be confusing and sometimes overwhelming. There are multiple loan options to choose from, including government-backed mortgages, non-traditional loans, conventional financing, and jumbo mortgage (just to name a few.) How should the average first time home buyer begin the loan process? Which programs are best for their needs?

Let’s explore some options together.

FHA Loans

First time home buyers typically don’t have the luxury of having a lot of cash to use for a down payment. Very often, older, more established homeowners can use some of the proceeds from the sale of their old home to help finance the purchase of their new home. First-timers generally can’t come up with that much money on the spot, so low money down loans insured by the Federal Housing Administration (FHA) are a popular option.

With an FHA mortgage, eligible buyers can enjoy the benefit of making a low down payment of only 3.5%. Not only does the FHA loan program allow low down payments, but they also offer flexibility when it comes to the source of the down payment. For instance, FHA loans allow the borrower to use gifted funds as a down payment. Your parents, grandparents, a charitable organization, or even your employer or labor union can help contribute to your down payment.* Conventional home loans typically do not allow the down payment to be in the form of a gift.

VA & USDA Loans

The Veterans Administration (VA) and the United States Department of Agriculture (USDA) are two government agencies that insure certain mortgages for borrowers who meet certain guidelines. These two loan types are not available to everyone, but those who qualify can enjoy the benefit of paying zero money down for their loan.

VA loans are only available to qualified military veterans, active-duty military, or surviving spouses. Those who qualify can get 100% financing with no money down. See the expanded list of qualifications on the VA website: Requirements for the VA Home Loan

USDA loans are available to borrowers who meet certain income criteria and are purchasing a home in an area that is designated as rural by the USDA. You can see if a particular property is located in a USDA-eligible zone by looking it up on the USDA website: USDA Property Eligibility Map 

HomeReady & Home Possible

These two programs are part of the Fannie Mae and Freddie Mac line of qualified mortgages. These two loan options offer low money down features (3% down**), flexible down payment sources (gift funds allowed*), and reduced mortgage insurance costs. Learn more about the programs.

One standout feature of the Home Possible program is that it makes allowances for down payment assistance. For example, if you apply for a Home Possible mortgage but still have trouble coming up with the 3% down payment, you can apply for down payment assistance. This secondary lien can be combined into your overall mortgage, and you can take advantage of a higher LTV (105%) when doing so. (If all of this sounds super confusing, don’t worry…you’re not alone. Just talk to a trusted loan professional for more information and don’t hesitate to ask questions.)

At Luxury Mortgage, we have many years of experience working with down payment assistance programs and helping our borrowers navigate the process. It may require a few additional steps, but it can be worth it for the right borrower in the right scenario.

Ready to Learn More?

Connect with the home loan professionals at Luxury Mortgage today to learn more about these low money down mortgages and other home financing options. Simply click the button below to get started.