Types of First Time Home Buyer Loans

By Shauna Zamarripa

First time home buyers are normally a huge segment of the real estate market. However, most first time home buyers do not know the differences in home loan financing. Being educated about the choices and programs available can save a first time home buyer thousands of dollars in interest and fees over the term of the mortgage. Enclosed is information pertaining specifically to the types of first time home buyer loans available.

Due to the low down payment requirements of 3.5% and the minimum credit score requirements, FHA is one of the best programs for first time home buyers. Terms will range from 10 to 30 years for most of the fixed rate loans available to first time home buyers. Monthly payments are calculated with property taxes and insurance factored in to determine affordability for the first time home buyer.

FHA HUD loan programs are designed for first time home buyers who are interested in purchasing a FHA foreclosure home. This loan program offers down payments as low as $100, closing cost assistance up to $2,500 and a small amount of repair escrow on select homes that require repairs. This mortgage is a fixed rate mortgage that factors in taxes and insurance into the monthly payment. Terms range from 10 to 30 years.

First time home buyers with excellent credit should consider a conventional loan. The down payment requirements are 5-20% of the home's purchase price. However, buyers with higher credit scores will benefit from lower interest rates, saving thousands of dollars over time. Terms on fixed rate conventional loans range from 10 to 30 years, and the interest rate starts at the market rate. Interest rates will decrease based on the creditworthiness of the buyer.

Military veterans who have been honorably discharged or active duty military can qualify for a VA loan that requires no down payment. The interest rate on a VA loan is typically up to 1 percent less than the market rate, and the term ranges from 10 to 30 years. Property taxes and insurance are also factored into escrow for the monthly payment on these loans to determine affordability for the veteran. Veterans must pay a 1% funding fee on their loan at closing.

Disabled veterans or veterans who have been discharged from service due to medical conditions are eligible for VA loans with no down payment, no funding fee and rates up to 2% less than the standard market rate. First time home buyers that have been in military service can take advantage of this loan with qualifying documents from the VA. Property taxes and insurance are factored into this loan to determine an affordable monthly payment. Terms range from 10 to 30 years.

USDA loans offer first time home buyers 102% financing on their home. USDA guidelines stipulate that only certain areas of a city or state qualify for this funding program and must be deemed as "rural" (having a population less than 10,000). There is no down payment required for a USDA loan and no monthly fee for mortgage insurance. However the rate can be 1 percentage point higher than the standard market rate in some areas. Terms range from 15 to 30 years.

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