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The best mortgage for first time home buyers is one that allows you to enjoy your new home to the fullest extent. Many new home owners find themselves struggling to make ends meet. Worst of all, once the papers are signed, it's often difficult and costly to do anything about it. Don't let this happen to you. A little thought now can save you a lot of worry later. Understand how much you can comfortably afford and look at loan options that make sense for your situation.This way, when you see something you love, you can confidently take the next step.
The array of possible mortgage options is staggering. Most of these are some form of adjustable rate or variable interest product. What all of these loans have in common is that they involve risk. Also, they are at the root of many foreclosures, so it is wise to tread lightly. They are, however, a good option under the right circumstances. You need to understand this type of financing thoroughly to use it properly. If you are just looking to buy a house and build some equity this type of loan is probably not the best solution.
The Perfect Home
If you find the perfect home, one where you want to be for the next decade or so, and it fits within your budget, a 30 year fixed mortgage is the way to go. It is a stable type of loan. If your credit is good, you can usually qualify for a competitive interest rate. Look for a loan that does not penalize you for paying more to the principle. Then, add in a little extra each month so that the mortgage is paid quicker. This will build your credit and possibly save you many thousands of dollars over the life of the loan.
While buying the perfect house and holding on to it is financially smart, the truth is, it's hard to do. The house you'll need in the future is often just too expensive now. Most people are not really sure what they will want or need in the future. In these cases, maybe a 30 year mortgage is not the best idea. It usually takes 4 years before the home could be sold without losing money. Even after four years, there is not much equity built into a home to sell it.
There is another way to buy what you can comfortably afford now, build equity fast and still have stability. This option is the fifteen year fixed mortgage. Because you are paying it off in half the time, you build equity much faster. However, twice as fast doesn't mean twice as much. Typically, a fifteen year fixed mortgage is only a few hundred dollars more than it's thirty year cousin. It will give you flexibility in the future to stay or sell depending on circumstances. Whatever your mortgage decision, get pre-qualified and then only look at homes you can easily afford. Struggling to make a house payment is never fun. Keep your options open.
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