First time home buyers loans are a world of mystery for a lot of prospective homeowners, which can be a catch 22 situation. Unless you’ve had one before, you often don’t know what to look for. What is a good deal and what isn’t can be very confusing but with a little knowledge you can soon get a good idea of what you want.
Discovering the Different Types of Mortgages and Loans
The first thing you should learn is what types of mortgages are available and what the differences are. That way you can make a decision about what is best for your situation. Everyone is different and that’s shown by how much choice you have when selecting your first time mortgage. The types of mortgage are:
- A Fixed Rate where interest is the same for the duration of the loan (up to 30 years).
- A Two step where the interest rate is fixed for around 7 years then on year 8 it changes to match the base rate and is fixed at that for the remainder of the 30 years. This can also be done for five to twenty five.
- Ten year to one year adjustable where you can have a fixed rate for ten years and after which the rate reflects fluctuations in the national base rate or prevailing interest rate as it is known. The interest amount will then change every year. This can also be done for seven, five and three to one.
- A balloon where your interest rate and monthly payment will be the same for five or seven years and then you have to pay the balance in full or refinance at the base rate.
- A five to five is another type of two step but the interest rate is fixed and will change after five years. Then it will change again every five years. You can also get a three to three which works the same way.
- Lastly you can get a one year adjustable where your mortgage tracks the base rate and is fixed for just a year at a time.
Deciding on the Best Type of Home Buyer Loan
What is best for you, depends on what you are intending to do in the future and what the current rates of interest are. If the base rate is at an all time high or is very high compared to the past then you would be unwise to fix it for any length of time. Adjustable mortgages can be a good way to take advantage of a favorable market but they can also be a risk.
If you are happy to have a steady payment without fluctuations then you should choose a fixed rate mortgage. How long you want to fix the rate for will depend on how long you intend to live at the property. If there is a chance that you will move house within the next few years then you may want to get a fixed rate for that amount of time. Fixing your rate will give you some sort of stability and takes the gamble factor out of house buying to some degree.
A balloon mortgage is great for someone who likes stable payments, if you are expecting to move before the end of the fixed rate period or you are comfortable with refinancing in line with the base interest rate. First time home buyer loans are not that complicated when you realize that there is lots of choice but they are all fairly similar.
Just make sure you are aware of what a good interest rate is and what is not before you start shopping for finance. You may like a stable payment but if the rate drops considerably in the next 12 months you will be paying too much in interest. If however, interest rates are currently low then you should fix it for a long period.
What is most important is not to rush in, and firstly check out a few lenders and even speak to a government HUD (Housing and Urban Development) approved pre-purchase counselor. They will be able to tell you if you are getting a good deal and give you impartial advice as they are nonprofit organizations. Searching for home loans for new home buyers should be a fun exciting time if you have done your research.