The current real estate market is a particularly rough one for first-time homebuyers. With rising interest rates, rising costs, limited supply, and high demand, it can be a struggle to purchase a property. On top of that, competition from investors isn’t making it any easier.

That being said, knowledge is power when it comes to being a first time home buyer. There are many different types of home loans for first time buyers, and knowing which loan is right for you before you start your search can help make sure you have your ducks in a line.

Are you wondering what types of first time home buyer programs are out there?

Let’s take a look at what you need to know.

FHA Loans

The Federal Housing Administration (FHA) is a United States government agency that provides mortgage insurance on loans made by lenders that are approved by the FHA.

The FHA loan is a government-backed loan program that allows people with less than perfect credit to buy a home. The program was designed to help first-time homebuyers, low- and moderate-income families, and even some of those who have been turned down for conventional loans.

These loans are not just for first-time homebuyers. They are also available to anyone who can meet the eligibility requirements However, they are a great option for first-time homebuyers because it offers lower down payments, less strict credit requirements and cheaper monthly mortgage insurance.

USDA Loans

The USDA loan is a type of home loan that is available to those who live in rural areas. This is one of the first time home buyer programs that provide low-interest loans to those who are unable to get financing from other sources.

The USDA home loan program, however, is not just for first-time buyers. It also offers loans for people who have been in the same residence for 3 years or more and have a good credit score.

The USDA has two main types of loans: direct and guaranteed. Direct loans are available to qualified buyers who meet the eligibility requirements for their area, and they offer low-interest rates and flexible repayment terms. Guaranteed loans are available to qualified buyers who do not qualify for a direct loan, but they have higher interest rates and more rigid repayment terms.

VA Loans

VA loans are a type of mortgage loan that’s guaranteed by the Department of Veterans Affairs. The VA guarantees lenders against loss in case of borrower default. This means that if you can’t pay your mortgage, the VA will cover it for you as long as you qualify for the loan and meet the requirements for using the benefit.

VA loans provide home buyers with a competitive advantage. They offer more benefits than any other type of mortgage loan, so it’s no surprise that they’re so popular among first-time buyers and veterans.

This type of loan offers more advantages than traditional mortgages. They have no down payment requirements, lower interest rates, and no monthly mortgage insurance.

However, there might be criteria set by individual VA lenders even if the VA itself doesn’t set income or credit requirements. These loans are designed specifically for veterans, service members, and surviving spouses.

Freddie Mac and Fannie Mae

Freddie Mac and Fannie Mae are government-sponsored enterprises (GSEs) that offer mortgages to qualified buyers. They buy mortgages from lenders, package them into securities, guarantee them against default, and sell them to investors. The two companies also provide liquidity for the mortgage market by purchasing loans from lenders so they can continue making new ones.

There are a range of conventional loan products that are offered thanks to Fannie Mae and Freddie Mac. For example, the HomeReady loan from Fannie Mae is designed for people with a low income but that have a credit score of 620 or higher. These loans require buyers put 3% down on the purchase of a property.

With this type of loan, you might be able to stop paying mortgage insurance after you have built up 20% equity. This isn’t the case with FHA loans, where you can only cancel your PMI if you originally put 10% down and 11 years have passed.

Another loan that only requires 3% down is the Freddie Mac Home Possible loan. This is a first-time home buyer program but also intended for retirees and move-up borrowers. You can use funds from grants, gifts, or loans or sweat equity to help pay for closing costs and your down payment.

Home Renovation Loans

If you are interested in buying a home that needs some work, you might be interested in a home renovation loan. This way, you can both purchase a home and renovate it using one single loan.

There are a number of different options when it comes to home renovation loan programs that can be used for a first time home buyer loan. These include the Energy Efficient Mortgage program, the FHA 203(k) loan, HomeStyle from Fannie Mae, and the CHOICE Renovation loan.

If you’re trying to figure out the right kind of home loan for you, check out this guide to the different home loan types.

The Different Types of Home Loans for First Time Buyers: Knowledge Is Power

When you understand what your options are when it comes to types of home loans, it can empower you to make the best financial decision for you and your family. In the current real estate climate, it can take some creativity to finance a property. The more you know about first time home buyer loans, the better position you’ll find yourself in.

Did you find this article about the different types of home loans for first time buyers helpful? If so, be sure to check out the rest of our blog.

By Manali