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Five mortgage advantages for first-time homebuyers

First time buyer mortgage advantages

There’s no getting around it—it’s a great time to be a first-time homebuyer. Below, we outline five advantages that every first-time buyer should know as they apply for a home mortgage loan.

1. Down payment assistance

For many buyers, saving for a down payment can be one of the largest hurdles in achieving homeownership. Fortunately, there are a number of down payment assistance programs available for first-time buyers. Both government-backed grants and assistance loans are available across Minnesota and western Wisconsin.

Ask your REALTOR and lender for more information on the availability of such programs in your area, or learn more here.

2. FHA loan options

Federal Housing Administration (FHA) offers government-backed loans that can benefit first-time buyers and potential buyers by offering loans that only require as low as 3.5 percent down.

FHA does offer loans with loan limits that vary by market area. For example, buyers who have secured an FHA single-family home loan in Hennepin County, Minnesota, can borrow up to $322,000 while borrowers in Burnett County, Wisconsin, can secure a loan for up to $271,050.

Find the FHA lending limit for your area.

3. Lowered mortgage insurance premiums on FHA loans

If you secure an FHA loan, you’ll pay mortgage insurance at closing and throughout the life of the loan. FHA mortgage insurance provides lenders with protection against losses incurred if a homeowner defaults on their mortgage loan. The lenders bear less risk because FHA will pay a claim to the lender in the event of a homeowner's default. Loans must meet certain requirements established by FHA to qualify for insurance.

The good news is that FHA recently announced that they’ve lowered the annual mortgage insurance premiums from 1.35 percent to .85 percent. Experts predict that this will save the average FHA borrower around $80 per month. For example, borrowers with a loan amount of $200,000 will save approximately $900 annually with the new reduced annual MIP.

4. Three percent down payment options on conventional loans

FHA isn’t alone in opening up borrowing options for credit-worthy buyers who can afford a mortgage but lack the savings to pay a substantial down payment. Mortgage giants Freddie Mac and Fannie Mae have also announced that they will be offering mortgages that only require as little as 3 percent down payment.

To minimize risk and ensure responsible homeownership, Freddie and Fannie will require that homebuyers with low down payments have a credit score of 620 or higher. If you are interested in these programs you may need to undergo homeownership counseling and offer a full financial and income history to your lender.

Please check with your lender as program requirements may vary.

5. Low mortgage interest rates

Mortgage rates have been incredibly low for the past few years, and 96 percent of consumers believe they have bottomed out and will begin rising in the future.

What do those “in the know” think? According to experts across the industry—including Edina Realty president Barb Jandric—loan rates are expected to stay relatively low in 2015 but may begin to rise later in the year.

How important are these low rates to first-time buyers? Extremely. If interest rates were to increase even one percent from today’s rates, a borrower’s buying power could be reduced by 10 or 11 percent.

Check current mortgage interest rates.

What happens next?

With the above advantages and our strong local economy boosting wages and confidence, we know that the spring market will be full of first-time buyers. If you’re ready to enter the market for the first time, reach out today and our local experts will get you on your way.

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