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4 Tips When Choosing a Mortgage Plan for Your First Home

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Buying your first home is an investment of your time, resources, and of course, money. Unless you studied finance or real estate in college, stepping into the world of down payments, home equity, and mortgages can be daunting.

But don’t panic—there are a few tips and tricks to keep in mind that will help you make the right choice when it’s time to choose your mortgage plan!

#1 Start Taking Steps BEFORE You Apply for a Mortgage

As soon as you start considering purchasing a house, you’ll probably have to adjust a few financial habits. One of the biggest challenges for buyers is the down payment, and saving up for putting down such a significant chunk of change can take years.

The upfront cost of the down payment isn’t the only thing first-time home buyers should consider in the early phases of their planning. You’ll also need to:

     Obtain and maintain good credit: Boosting your credit score can take months, so don’t wait until the last minute to consider your credit. Credit score requirements can vary between lenders, but in general having a credit score between 700-750 is the standard for having ‘good’ credit. Most mortgage providers primarily look at FICO scores, which you can check free of charge and without lowering your score. 

     Build an emergency fund: Having a financial safety net is a good idea for anyone, but for home buyers, it’s a necessity. Potential lenders often require candidates to have liquidity available before they offer them loans. Using budgeting apps, setting up automatic transfers with your bank, or just making a spreadsheet can all help you start saving.

     Pay off debt: This might seem like simple advice, but paying off debt can have a big impact on your overall financial health. A mortgage represents one of the biggest debts you’ll likely ever take on, so reducing other debt beforehand is extremely important. Focus on paying off high-interest debt first.

#2 Take Advantage of Being a First-Time Buyer

Although buying your first home doesn’t come with the perks of being able to rely on prior experience, you might be surprised to learn that there are some significant benefits to being a first-time buyer! Special programs, grants, and loans are available from both public and private lenders that offer first-time buyers’ options like:

       Low down payments

       Payment deferment

       Low interest rates

       Loan assistance

Bonus Tip: You’re still considered a first-time home buyer if it’s your first time purchasing a home without a spouse.

#3 Consider Your Circumstances

Which mortgage you choose will depend largely on your circumstances—financial, occupational, and personal. As you start to weigh the pros and cons of various types of mortgages, determine if you are eligible for any of the following types of loans:

     FHA Loan: Federal Housing Administration (FHA) Loans are great options for those with low credit scores, and who can’t afford high down payments.

     VA Loan: Veteran Affairs (VA) Loans are available to current or former service members, and allow buyers to purchase a home with no down payment. As an added benefit, using a VA loan makes you eligible for VA streamline refinance options down the line.

     USDA Loan: The US Department of Agriculture (USDA) provides attainable loan options geared towards low-income individuals who live in rural parts of the United States.

#4 Get Help

The idea that buying your first home is a big decision is a fact, but the notion that it’s a totally overwhelming process is a myth. Don’t be afraid to ask for help, and remember—there are entire industries that revolve around helping people purchase their dream home. From your banker, to your financial advisor, to your loan officer, there are experts you can turn to at every step of the way.

Choosing a mortgage plan as a first-time buyer can seem like an overwhelming process. But with resources at your disposal and a myriad of lending options, the perfect plan is out there. So start getting your finances in order, do your research regarding which mortgage is best suited for you, and enjoy starting the next chapter of your life!

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