Mortgage Tips For First-Time Homebuyers

As you open your windows and embrace the warmer weather, you may be tempted to spring out of your current accommodations and buy your first home. However, your first time purchasing a home may seem daunting as you review the pricing of houses and the process of finalizing your purchase. You’re not alone; many first-time home buyers find the biggest obstacle is saving for the down payment and closing costs.

Thankfully, there are many loan options available to buy your first home without a large down payment requirement. The best place to start is contacting a mortgage lender at your credit union. They will help you determine the price range of the home you can afford, discuss the loan options available, and get you preapproved. (If you are not already a member of a credit union, you can go here to find one in your area.)

To get a head start before your appointment, be aware of your credit history. Those with a better credit history may have greater access to lower rates and down payments. You can get a free copy of your credit report each year from AnnualCreditReport.com to look for any errors or negative items that may need to be corrected.

You may also want to gather some of the documents that are commonly needed for mortgage loan applications. These include: current pay stubs, the past two years of your W-2s, current statements for all bank/credit union accounts, and any retirement account statements. Your loan officer will tell you if any additional documents are needed. However, before you meet with the mortgage specialist, you may want to know some basic information about the types of home loans available.

Fixed Rate Mortgages

The most traditional home loan option is a conventional fixed-rate mortgage. These loans are designed to fit both first-time and repeat homebuyers. As the name suggests, the interest rate stays the same throughout the loan.

• Minimum of 5% down required, plus closing costs
• Private mortgage insurance (PMI) will be required if you have less than 20% down payment

Adjustable Rate Mortgages

These home loans generally offer you a lower fixed rate in the beginning than a comparable fixed-rate mortgage, but after a predetermined period of time, the interest rate and payment can be adjusted by the lender. However, there is a pre-established maximum rate to give you peace of mind that your mortgage will always be affordable. Adjustable-rate mortgages (ARMs) can be a good option for borrowers having difficulty getting approved for a fixed-rate mortgage or do not plan on staying in the home for longer than the initial fixed-rate period.

• Minimum of 10% down, plus closing costs
• Private mortgage insurance (PMI) is generally not required
• Initial fixed-rate periods vary by financial institution, but three, five, or seven years are common

FHA Loans

FHA loans cater to low-to-moderate income borrowers who cannot afford to make a large down payment. These mortgages are insured by the Federal Housing Administration, but are available through a number of approved lenders.

• Minimum of 3.5% down required, plus closing costs
• If you have less than a 20% down payment, private mortgage insurance (PMI) will be required
• The PMI is noncancelable even if you pay the loan down faster than expected
• There are income limitations to qualify for these loans
• You may find more information on the Department of Housing and Urban Development website

HomeReady

HomeReady loans are also designed for low-to-moderate income borrowers who cannot afford to make a large down payment. They differ from FHA loans in that they are not federally insured.

• Minimum of 3% down required, plus closing costs
• If you have less than a 20% down payment, private mortgage insurance (PMI) will be required
• PMI is cancelable after you have 20% equity in the home
• Homeownership education is required from an approved source before purchasing a home
• You may find more information at Fannie Mae’s website

Veterans Affairs Loans

VA loans are available for active duty service members, National Guard members, reservists, and veterans that meet eligibility requirements.

• No minimum down payment
• Private mortgage insurance (PMI) is not required
• If you believe a VA loan may apply to you, more information about eligibility is available on the Department of Veterans Affairs website

These are just four common types of mortgage loans. There are many more available to accommodate your financial needs. Your unique financial situation will determine the loan product that is best for you. Keep in mind, not all financial institutions offer every type of loan.

Once you are preapproved, keep these additional tips in mind when you are on the hunt for your first home:

• Research the area you are looking to live in. Property taxes and service fees (such as for waste and utilities) vary from municipality to municipality. In addition, gated communities may have yearly homeowners’ association (HOA) costs
• Ask for a home inspection before purchasing in order to anticipate future costs, such as a new roof or water heater. Some inspectors will also assess energy efficiency within the home so you can gauge heating/cooling costs year-round

When you are ready, Evergreen Credit Union has the resources to help you secure the loan that fits your situation. One of our knowledgeable loan officers can help you explore your options. Call (920) 729-2999 or stop by to make your appointment today. Membership is open to everyone who lives or works in Outagamie, Waupaca, Waushara, Calumet, or Winnebago counties.

*Information valid as of 5/12/23. Terms and availability may vary by lender. Please consult your financial institution for eligibility and rates.