If you're ready to quit the renting game and buy your first home, congrats! Now it's time to weigh your mortgage options. Your first step should always be shopping the market. To do this:
- Go with a trusted source. It's easy to sign the dotted line for the lowest interest rate, but that's not always the way to go. Don't be fooled by gimmicks and marketing tactics and always do business with someone you can trust. More on that later. But, when you finance a home through a credit union, you know you're getting one of the best rates on the market from a lender who puts people before profit, and combined with the already lower interest rates. This makes credit unions a great source for financing.
- Solicit advice. Ask your friends and family. They'll tell you the good, the bad and the ugly experiences they've had.
- Read the reviews. A simple Google search can tell you everything you need to know about a mortgage loan provider. Take everything with a grain of salt, but if you identify any patterns positive or negative, take it as a sign.
Now that you've found a partner, do a little research on mortgage types. If you're a first-time buyer, you'll likely have two options: FHA (the first-time homebuyer loan) or conventional fixed/adjustable rate. There's no better source than your mortgage loan officer on which type to go with, but it's always a good idea to do research beforehand.
Weigh the pros and cons:
- With a first-time homebuyer loan, you don't have to put as much money down - meaning you don't have to have as much saved to simply buy a house.
- Credit requirements are a little lower than conventional mortgages, so if you're just starting out or rebuilding your credit, an FHA loan can truly be a fresh start for your life.
- The interest rate is typically lower than a conventional mortgage.
- If you don't put 20% down, you'll likely have to pay private mortgage insurance, which means anything you save in lower interest you make up for in PMI payments.
- Many FHA loans are actually adjustable rate mortgages, so you'll be locked in to your rate for a few years to have it increase at a later date.
- The property standards are a little higher for first-time buyers than conventional buyers. It's truly a protection for the buyer, but what seems like a minor inconvenience to you could mean losing out on a home.
The single greatest benefit of the conventional loan is avoiding costly monthly mortgage insurance payments. The property standards are a little looser too, so if you have 20% to put down on a home, the conventional mortgage may seem like a no-brainer.
When it comes down to it, you simply need a partner who knows your financial story and will advocate on your behalf. That's why you should make a smarter choice and talk to your local credit union.