As we all know, obtaining a first-time home buyer mortgage is a crucial step in purchasing your dream house. However, some essential factors help to choose the most appropriate mortgage. Taking your time to research the right mortgage for your new home can save your time and money.
Some overwhelming options like a myriad of financing are available for first-time home buyers. If you are planning to purchase a new house, then it is vital to understand the market. Taking a close look at this article will ensure you the best first-time home buyer mortgage that suits your needs.
Different Types of loan
Here we are going to show you some types of loan that you have to know.
Federal Housing Administration loan
It is a part of the Canada Department of Housing and urban development that is providing various mortgage loans programs. However, FHA loans are easier to qualify and have lower down payment requirements. You can make a payment as low as 3.5% in addition to lower upfront loan costs and less credit requirements.
So that is why FHA loans are excellent for first-time home buyers that cannot exceed the statutory limit.
It is a type of fixed-rate mortgage that not insure by the federal government. However, conventional loans are uneasy to qualify, and have a larger down payment, higher credit score than FHA loan. If you fit for this loan, then it is less costly than loans that guarantee by the federal government.
Further, conventional loans divide into two known as conforming loans or non-conforming loans. Some government-sponsored lenders will often buy and package conforming loans and then sell them in the secondary market. On the other hand, due to regulations, a non-conforming loan cannot sold on the secondary market.
The government insures this loan. However, it does not make loans itself, but some lenders guarantee mortgages that will allow veterans to obtain home loans with favourable terms.
It is easier to qualify for this type of loan than a conventional loan, and you will need to request your eligibility from the VA to apply for this loan. The VA will issue a certificate of eligibility after the acceptance that you can use to apply for a loan.
State and local governments in addition to these federal loan types sponsor assistant programs to increase home ownership in certain areas.
Income requirements in applying for any first time home buyer mortgage
The pricing of home mortgage loans determine by the lender in two ways depending on the creditworthiness and the borrower. However, lenders will calculate the loan to value ratio in adding to checking your FICO score from three vital credit bureaus.
LTV is the amount of actual equity that depends on dividing the loan amount by the purchase price of the home. If higher the amount of LTV, then the greater will be the risk of default. Therefore, lenders will charge more.
Moreover, DSCR (Debt service coverage ratio) determines your ability to pay the mortgage. To access the probability that you will default on the mortgage. So the larger the possibility that you can cover borrowing costs, the lower the lender takes the risk, and more likely they will negotiate the loan rate.
While negotiating with a mortgage lender, you should include any qualifying income. If you are doing any part-time job, then it can make a difference between qualifying or not qualifying.
So the purpose of this guide is to give you every possible information about a first-time home buyer mortgage. However, it is uneasy to classify through all the financing options, if you are looking for a mortgage for the first time. The bottom line is that if you can create a low LTV, then you will have more negotiating power with lenders and the most financing options. So take your time to find the best mortgage.