No matter the circumstances, being a first-time homebuyer in Atlanta can be both exciting and overwhelming — especially when it comes to financing. While owning one’s own home can be a great investment and provides more personal autonomy, for most people it is also the biggest financial responsibility they have ever undertaken. It helps to do a little homework in advance about the different types of financing available, the terms of each and how to qualify for them. To smooth the learning curve a little bit, let’s explore four common types of mortgages for first-time Atlanta homebuyers.
1. Conventional Mortgage
We begin with conventional mortgages because while they have the strictest credit and highest down payment requirements, they also afford the lowest interest rates and the most flexibility. The standard conventional mortgage requires 20 percent down, and income/credit requirements are established by the lender based on the type of loan product. The most common conventional mortgages are 30-year fixed loans, meaning your interest rate and payment are locked in for the duration of the loan and won’t go up. You may also run into adjustable rate mortgages (ARM), which may start with a lower interest rate and payment but will adjust over time, making them a less certain option for budgeting and financial planning. Finally, some people opt for a 15-year mortgage, which generates a higher monthly payment but enables them to pay off the loan more quickly.
2. FHA Loans
Specifically designed for first-time home buyers, FHA loans are mortgage loans that are backed and insured by the Federal Housing Authority so that lenders can be more flexible with down- payment and credit requirements. FHA loans typically require only 3.5 percent down, offer fixed-interest terms and can often accommodate people with less-than-stellar credit scores. The tradeoff is that these loans also require mortgage insurance to guarantee them in case you default, which increases your monthly payment. Many first-time Atlanta homebuyers opt to start with an FHA loan, then refinance under a conventional mortgage once they’ve gained enough equity in their home to cover the 20 percent down payment.
3. VA Loans
If you have served or are currently serving in the military, you may qualify for a VA Loan through the Department of Veteran Affairs (VA). These loans are highly advantageous to first-time buyers because they have relaxed income/credit requirements, do not require mortgage insurance and frequently require no money down. The VA has posted eligibility requirements here.
4. Fannie Mae HomeReady/Freddie Mac Home Possible
Offering additional options for first-time home buyers — particularly those on a budget — Fannie Mae and Freddie Mac offer HomeReady and Home Possible loans, respectively. These government-backed loans are similar to FHA loans in that they help homebuyers acquire a mortgage with a small down payment (typically 3 percent), but they also waive the mortgage insurance requirement and are more flexible about income sources, parental co-borrowers, etc. You will need a higher minimum credit score to qualify for these loans than you would with a standard FHA, however. HomeReady and Home Possible have varying terms and requirements, so check with your mortgage broker to see whether either of these programs is right for you.
The process of financing a home for the first time can be a bit intimidating but knowing your way around the various types of mortgages can help you navigate the process a bit more easily. When you are ready to look for your first Atlanta home, we are here to help. Call Atlanta Fine Homes Sotheby’s International Realty at 404.948.4812.