When Putting an End to Renting and Moving into Home Ownership

The time has come when you’ve had enough paying rent every month, and you’re ready to move into a home of your own. There’s a lot that goes into buying a home ranging from loans to what to take with you into your new home. It can all get more than a little confusion, which is what we are here to help with.

It All Starts with the Right Loan

While there are many different types of loans out there, most first-time buyers (except veterans who have access to VA loans) begin with either a conventional or FHA loan.

FHA Loans

FHA loans are perfect for those who cannot come up with a 20% down payment or perhaps have a low credit score. The FHA only requires you to have a FICO credit score of 570 or better and as little as 3.5% for your down payment. If you have more than the minimum 3.5%, you may even be able to squeak by with a lower score. Sounds good so far, right? However, like anything that seems too good to be true, there are a couple of significant downsides to what might otherwise appear to be a perfect set up.

The first of which is that you must carry mortgage insurance for the length of your mortgage, the other is the FHA has restrictions on the type of home you can buy. This could include condos as many do not meet with the standards established by the FHA. However, for the first-time buyer with a small down payment or credit issues, an FHA loan might be your best option. These loans are also insured by the federal government, which protects the lender, not the borrower.

The Conventional Loan

Conventional loans are not protected by the government; they follow the guidelines established under Freddie Mac and Fannie May. You can use this type of loan to buy both a primary residence and secondary home such as a rental property. One good thing about this type of loan is that you are not required to purchase loan insurance. This is as long as you have the required 20% for your down payment.

Moreover, if you do purchase loan insurance, you are only required to keep it in place until you have reached the point at which your payments have reached the point at which you have 20% equity in the home. The upside to buying mortgage insurance for a conventional loan is that it tends to cost less than it would for an FHA loan in many cases.

No matter how much you have saved for your down payment or where your credit score lies, be sure you talk to your realtor about the various loan options available to you. You should also talk to the mortgage specialists at your bank, between the two of them you should be able to find a mortgage that best suits your financial situation and ensures you will be able to purchase your dream home with a minimum amount of personal and financial stress.