Finding the Best Mortgage for the First Time Home Buyer

Buying your first home can be both exciting and frightening. As you explore the housing market for the first time, determining which is the best mortgage for a first time home buyer can feel like an impossible task. Here we offer a few tips as you navigate this (sometimes stressful) process. 

Understand your actual budget 

Work with your financial advisor to come up with what your monthly mortgage payment should be based on your budget. Then use that number to calculate your maximum home price.  

To calculate how much you should spend on a home, consider how your monthly mortgage payment will affect your budget. Be sure to account for potential future expenses as well, such as home repairs, childcare, car payments, education savings, etc. 

Believe it or not, your mortgage broker will likely approve you to borrow more money than you were expecting! But remember that what your broker approves is simply what you qualify to borrow. It doesn’t mean you should or have to borrow that much. 

The best mortgage for a first time home buyer will always be something that works for your budget, no matter how tantalizing other offers may seem. 

No-fear down payment 

Conventional wisdom often tells us that you need a 20% down payment to buy a home. While that’s not always the case, it’s certainly not a bad goal either.  

In fact, as interest rates increase, a larger down payment becomes more attractive. Remember that nothing paid upfront will accrue interest and add to the cost of the house in the long term. The best mortgage for a first time home buyer will strike a balance between an affordable interest rate and a reasonably sized down payment.  

A down payment for a home should never come from your emergency fund. Save for your down payment outside of your emergency fund. You should still have a full emergency fund, even after your big house purchase.  

Work with your dream team 

Besides a financial advisor to help you budget (we can help with that!), you’ll need to find a mortgage broker you trust.  

Ask your financial advisor, family and friends, trusted online reviews, or your bank for mortgage broker recommendations so you can find someone with whom you feel confident. This may be the largest purchase you’ll ever make, and you deserve to work with someone who makes the process smooth and comfortable.  

Understand your loan options 

Your team can help you sort through your choices, but here are some common options for the best mortgage for first time home buyers: 

Conventional loan: These common types of loans aren’t federally guaranteed. 

• Pro: You might be able to score more options on your loan structure. 
• Con: These types of loans can be harder to qualify for; you’ll need a strong credit score, and a larger down payment for the best rates. 

FHA loan: The Federal Housing Administration guarantees your loan. These are often geared towards first time buyers.  

• Pro: With this loan option, you can have a lower down payment—sometimes as low as 3.5%.  
• Con: You may be subject to a stricter home inspection, which may be a turn-off for some sellers. You may end up losing the house to other potential buyers not using an FHA product.  

Adjustable Rate Mortgage: These products have an interest rate that is fixed for a short period of time. They then will begin to adjust toward current market rates once the fixed period is up.  

• Pro: An ARM product can save you money if you don’t plan to stay in the home for a long time.  
• Con: If your plans change unexpectedly, you could end up spending much more on interest than you originally budgeted.  

Keep an open mind 

Any homeowner will tell you that owning a home looks much more glamorous on HGTV than it does in real life. After considering all your options, be sure to ask yourself if this is really the best time for you to buy your first home. Can you really afford it? Do you really want to take on the additional cost and work for the upkeep of a home? If your answers to these questions aren’t a resounding yes, you might want to reconsider and wait until the time is right for you to make the decision to purchase a home with confidence. 

As a first time home buyer, finding the best mortgage for you may seem overwhelming. But with the right plan of action, your dream home may be just around the corner.  

If you’re looking for support saving for a down payment, budgeting for monthly mortgage payments, or achieving overall financial stability, reach out to our team of expert financial advisors today!