First Time Home Buyers: Is an FHA Mortgage a Smart Option?

FHA Mortgages offer quite a few benefits. However, a question you may have is whether or not this is a good option if you are a first-time home buyer.

Unfortunately, there’s no black and white answer for this. In fact, the answer will vary from one borrower to the next.Even though the above is true, the FHA loan program is smart for first-time home buyers who have limited funds for a down payment and/or less-than-perfect credit. Learn more here.

First-Time Home Buyers and FHA Loans

There’s no single mortgage product that is right for all first-time home buyers. Each borrower is going to have different budgets, priorities and financial situations. The key is to find the right type of mortgage loan for your specific situation. To do that, you need to understand a few things, which include:

  • How each of the products work
  • How much it is going to cost you

An FHA mortgage may be right for you if you don’t have much money saved for a down payment, and it can be an option for those with low credit scores. An FHA home loan requires a down payment in the amount of 3.5 percent of the total purchase price or the appraised value – whichever one is less. This is partly what attracts people to the program to begin with.

However, there are some conventional options out there that have down payments that are as low as three percent, so don’t automatically rule those out.

Regardless of the program you use, you will likely have to pay for the mortgage insurance policy when you make a low down payment. This is true for FHA loans and conventional ones.

Mortgage Insurance: An Important Consideration for First-Time Home Buyers

Virtually every borrower who uses the FHA loan program will have to pay for mortgage insurance. This protects the lender, not the borrower.

There are two different premiums for anyone using the FHA loan program. The initial mortgage insurance premium is usually 1.75 percent of the total loan amount, and the annual premium for the majority of FHA borrowers is usually 0.85 percent (assuming the 3.5 percent down and 30-year term).

A non-FHA mortgage loan with a low-down payment typically requires mortgage insurance, too, but this is offered by a company in the private sector – not the government. From your perspective, you have to consider cost. Private insurance is usually less than what is assigned to an FHA loan.

If you are a first-time home buyer, you need to determine the full cost of your loan, which will include any mortgage insurance you may need. A quality lender is going to provide you with a total cost breakdown, so you can compare the financing options available.

The Role of Your Credit Score

If you are a first-time home buyer, and you have a less-than-perfect credit score, then an FHA loan may offer some advantages.

According to trends, approximately 7.34 percent of closed FHA loans went to borrowers who had a credit score of less than 600. For conventional loans, borrowers with credit scores of less than 600 were only about one percent of approvals.

As you can see, FHA loans are often a smart option for first-time home buyers. However, be sure to evaluate your situation carefully to ensure this option is right for you.

3 Tips for Millennials to Save Money

The fact that life is expensive probably qualifies as one of the most jarring realizations a young person will learn when coming of age.

Suddenly, things once taken for granted have a price tag attached. And unfortunately, many people reach adulthood without much in the way of strong financial sense, which makes dealing with those prices more daunting than necessary.

But take heart—we’ll provide you with a few guidelines to help. What is important to understand is that saving is perfectly manageable, no matter your specific income level.

Money Saving Tips for the Millennial Generation

Everyone’s earnings and debts are, to some degree, unique to them. Nevertheless, the tips provided below are broadly applicable to the financial circumstances in which many find themselves. Take from them what you will.

1. High Interest Loans: When Should I Refinance?

Immediately. You should refinance high-interest loans immediately. If you were a college student at any point in the past twenty years, you likely took on some debt. The loans you accepted may have made sense at the time, but did you negotiate a reasonable interest rate? What about the credit cards you used for daily expenses? Any idea as to the APR?

Mercifully, mistakes (or miscalculations) you may have made years ago do not necessarily need to plague your financial situation today. Work with a lending party that specializes in debt consolidation or loan refinancing and you just may enjoy lower monthly repayment terms. You should then actively invest the money saved each month and begin the process of reversing your financial trajectory.

2. Budget Wisely

In a consumer-based economy, the impulse to spend can be overwhelming at times. Resist that impulse. Or cave in every now and again—but make certain your budget can support the expense.

Make a budget. By spending fewer dollars less than your income, you are guaranteed to have the money necessary for important things like, say, investing.

Refraining from spending is only half of the equation. The other half is making sure the money not spent is finding a home in some sort of profitable environment—a stock, a rental property, a mutual fund, a money market. Calculate what percentage of your income you can consistently direct towards your investment portfolio, then honor that percentage without fail.

3. Purchase Shrewdly

It may not be fashionable these days (if ever it was) but seeking out bargains where they are best found is an excellent means of saving money. This is profoundly true of larger expenses, cars being a prime example, but you should also adhere to that mindset when shopping for, say, student loans.

Lenders vary widely from one to the next in terms of, well, their terms. Interest rates, repayment options—these are negotiable aspects of any loan. Recognize the power you bring to the table as a borrower and agree only to low, or lower, interest loans. The savings are not immediate, but they accumulate steadily as time passes.

Money Saving Tips, In Conclusion

It is easy to dismiss savings measures as miserly thrift. In truth, a strong savings plan is a path to mental tranquility. And please remember, the savings themselves may not seem substantial in the short run, but your investment of those savings will ensure sustainable financial prosperity.