First time homeowners begin the home owning process with a list of questions. How much house can we afford? What does it take to get approved? The most important of all is what is a good interest rate?
The interest rate questions are complex questions as the rates that are given to first time home buyers depends on numerous factors. What is your credit score? How long have you been at your current employer? What is your debt to income ratio? And how much money do you plan to put down on your new home? These are extremely important questions and the answers will typically provide the homeowner with the type of loan that is most suitable for their new home purchase.
Conventional home loans which typically require twenty percent down is the type of loan that usually is the best option as in most cases as it provides the homeowner with instant equity as well as a great interest rate. The interest rates for a conventional 30-year fixed rate as of December of 2018 are currently averaging 4.5%. These rates are subject to change at any time and are not guaranteed as again credit score, time at the current employer, and debt to income ratio are also factors in the rate that a mortgage company will quote the new home buyer. Although this is the most beneficial home loan to the buyer it is not necessarily the best option for most first-time buyers.
FHA loans otherwise known as government-backed loans can be a great option for a first-time home buyer as the requirements for such a loan are less stringent. To qualify for this type of loan a home buyer in most cases is only required to put 3.5% down, can have a lower credit score and can lock in a very affordable interest rate. Currently an FHA (government-backed loan) interest rate is starting at 4.1% for a 30-year fixed rate loan. Although a lower credit score is acceptable for this type of loan the interest rate will still depend on credit scores and debt to income ratio. A home buyer choosing this option will be required to prove income as well as provide other documentation and the price of the home can not exceed a certain amount which completely depends on the state and county where the home purchase is taking place. Future home buyers should check out the price range of a home in their state and county prior to deciding if this is the loan that will work best.
Home ownership is the largest and most complex purchase that is made in a person’s life, but it is also by far the most rewarding purchase. Research your options, prepare for a few years before making a home purchase and know your financial situation regarding debt to income, how much money you can afford to put down and most importantly your credit score.
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