What is the best mortgage for the first time buyer?
Looking for the right mortgage can be a challenge since there are so many mortgage programs offered by mortgage lenders. Different loan types provide different types of benefits. Usually when you think about first time buyer mortgage programs you think of FHA, VA or USDA loans which are sponsored by the federal housing administration, department of veteran affairs and department of agriculture respectively. All these loan programs have minimum down payment requirements but they have very high mortgage insurance premiums. And the closing costs and mortgage rates on these mortgage programs are not very competitive during today’s time.
The best program in today’s market is the conventional loan that is just a little more down payment than the FHA but differs greatly in rate, cash to close and mortgage insurance premium. This mortgage program can be obtained with a low down payment of 5% and a minimum credit score of 640 (interest rates will vary depending on your credit score). But this option is still the best option for you if you can do little extra down. It is surprising to me how a lot of loan officers do not offer this program to buyers that are pursuing a FHA mortgage, if you did a side to side comparison the cost difference is major, being very high on the FHA loan. Also if you decide you want to put more down on this loan program, you can do so at any given time, since there is no prepayment penalty on this mortgage.
Why the FHA mortgage is not a good option for you:
Lots of buyers would use the FHA mortgage because traditionally you could have a low credit score, minimum down payment and you would qualify for a home mortgage. And you would get a competitive rate that offered you lots of rebates to cover your closing costs. The pandemic has caused the cost premiums on these loans to go very high due to a lot of uncertainty revolving around job security and the economy. So these loans are not really helping today’s first time buyer, especially if you are looking for low closing costs and a low interest rate.
3 reasons why Conventional loan is the best mortgage program:
- Much lower monthly payment
- Lower mortgage Insurance &
- More Lender Rebate
Watch video to see the conventional and FHA loan scenarios run side by side! I hope this video is insightful to you!
Note: Conventional loan limit in Alameda, Santa Clara, San Francisco and Contra Costa counties is $765,600. Rate scenario was run on 07/31/20.