Buying your first house is a daunting prospect, particularly when you have to go through the complex steps needed to apply for and get any type of financing. There are a variety of mortgage options and loans available in today’s housing market as well as a few more unconventional finance options. Determining which one is right for your family involves carefully reviewing your own finances, your ability to pay back any loans and your future plans.
Option 1: Banks And Credit Unions Offer Traditional Mortgages
If you are a member of a credit union or have been using the same bank for your family’s finance needs for any length of time, you can apply for a mortgage through that institution. If you have good credit and have kept current with any other loans you have with them, you should be offered a few options for home loans that have reasonable terms. While the interest rates can sometimes be good, if you don’t have an established credit history or a decent downpayment, you may not be able to get an affordable mortgage.
Option 2: Borrowing From Family
This is an extremely informal way to finance real estate, but many first home buyers turn to parents or other relatives for help with a downpayment or in some cases, the entire cost of a new house. Some parents will take out a reverse mortgage or an equity loan against the cash value of their own house in order to obtain the funds needed for their children to buy a house. If you opt to borrow from relatives, be sure you put it all in writing so that both you and your parents are protected. While this works for some families, it can cause hard feelings if you have to default or fall behind at some point, so be sure you can handle the payments, otherwise bad blood could cause problems.
Option 3: Home Loans From Builders
One of the best ways for first home buyers to afford a new house is to work with a builder who is affiliated with an established lending institution. They will work with you to put together home loans that fit your budget by determining what kind of financing you qualify for and what your monthly payments will be. Because they offer several different home loans, established building companies can offer competitive interest rates and unique payment plans that work particularly well for first home buyers and individuals who may not have a strong credit history. Builders can also help you find additional funding options through government initiatives for first home buyers.
Option 4: Rent To Own
If you have no money for a down payment and you don’t want to immediately commit to a mortgage payment, you may be able to negotiate a rent to own plan. This is a good option for families with no credit or bad credit because you don’t have to put up any collateral and you aren’t committed for the first several years. This is essentially an agreement between the seller and the tenant with the tenant’s rent payments being credited toward purchase down the line. If the renter decides after a few years that they don’t want to buy, the money paid is simply considered rent.
Option 5: Tenants In Common
Tenants in common is an unusual form of purchase that lets more than one person or family pool their resources to get real estate loans at more desirable rates. By pooling their funds, they can come up with a larger down payment and pay off their mortgage earlier. While there are some advantages to this, there is also a down side. If there is a disagreement about the property or one or more tenants wants to forego the purchase, there may be legal ramifications. In these situations, first time buyers may decide to sell their portion of a tenants in common mortgage to the other owners.
It’s obvious that first home buyers have a variety of options open to them when they begin comparing home loans. For your first purchase, be sure you’ve explored all of your options so that you get the best deal possible on your first house.
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