Owning your own home gives you a sense of pride. It is your first chance to truly make your living space your own; you can add, subtract or more adjust anything around you. The greatest thing about going from renting to owning is that the money that was once lost every month to rent becomes an investment into an asset that, with a little upkeep, should continue to appreciate. 

Finding the right house can be exciting. You’ll consider different styles, different layouts and concepts and will even get the chance to walk through a few. Finding the right mortgage, on the other hand, is not as exciting. It takes industry knowhow and experience, and while it is ultimately up to you to navigate the mortgage process well, you do not have to go it alone. With the right help, you’ll know all the first-time homebuyer tips. 

There are many programs and incentives available to help first-time homebuyers. It’s definitely a good idea to get familiar with at least a few of them, but you should also find an expert you can trust. It is a mortgage expert’s job to understand which loan products may best fit your situation. In this piece, we’ll focus on the difference between an FHA Loan and the two conventional first-time buyer programs.

First-time homebuyer loans (FHA)

The Federal Housing Administration (FHA) Loans is a government agency that insures loans for qualified borrowers needing a lower down payment and more forgiving credit score requirements.

You don’t have to be a first-time homebuyer to get an FHA loan. You do, however, have to be using the loan on your primary residence and the terms of an FHA loan tend to accommodate many of the limitations first-time buyers have. 

FHA Loans come with good interest rates and 30 and 15-year loan terms. Borrowers with credit scores above 580 will only need to put 3.5% down. An FHA Loan is a great opportunity for these same borrowers to get financing at a reasonable rate and without drastically higher fees. 

The major drawback to an FHA loan is the mortgage insurance premium (MIP). This is an additional insurance expense that you will have to pay both up-front and monthly. If you are securing an FHA loan with the minimum down payment, the monthly mortgage insurance will continue throughout the life of the loan. 

Something to note here is that there may be other restrictions depending on the lender or investor. For instance, CapCenter requires a minimum 620 credit score across all products, including FHA loans.

What to know:

  • 3.5% down payment
  • Credit score as low as 500
  • Up-front and monthly mortgage insurance

First-time homebuyer loans (Conventional)

Fannie Mae and Freddie Mac have their own unique programs to help first-timers get in their home.

A conventional loan — backed by Fannie Mae and Freddie Mac — is arguably the best loan to get for primary residences. They are lenient on PMI (private mortgage insurance) requirements and more rewarding to people with equity in their home and good credit history. The standard conventional loan, however, requires at least a 5% down payment on a home, which makes it more expensive up-front. Enter Fannie Mae’s HomeReady and Freddie Mac’s Home Possible. 

There are slight differences between the two, but they both allow first-time homebuyers to secure a conventional loan with only a 3% downpayment. Private mortgage insurance (PMI) will be required, but there will not be an up-front and monthly fee like FHA’s MIP. One limitation is that there may be income restrictions for these programs depending on the area you’re buying in.

What to know:

  • 3% down payment
  • Credit score as low as 620 for HomeReady, 660 Home Possible
  • Income limits

First-time homebuying with CapCenter

Owning a home has plenty of benefits, but the home buying process can be daunting and intimidating. It doesn't have to be.

Working with a knowledgeable mortgage broker is the best way to make sure you end up with the right loan product. Without the help of a mortgage broker, you could end up leaving thousands of dollars on the table. 

When you are ready to buy your first home, let CapCenter help. We have helped thousands of first-time home buyers throughout the mid-Atlantic. With our experience and expertise, we can help make sure you get the best rates and terms available. If you would like to learn more about the home buying process in general, we encourage you to check out our Home Buyer’s Guide. With the right mortgage, you can rest easy knowing you have made a sound investment that will give you years of enjoyment, security, and a financial return.