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Buying your first home is one of life's most exciting and significant milestones. But, let’s be honest, it can also feel overwhelming. If you're like many first-time homebuyers, you may have a lot of questions. Let’s break it down!

When it comes to choosing the right mortgage, it’s important to understand your options, financial situation and goals. Here's a breakdown of some common types of mortgages that could be a good fit, depending on your circumstances:

HomeReady/HomePossible Coventional Mortgage

Who it's for: First-time homebuyers or buyers with limited savings and lower to moderate income.

Key benefits: A required down payment that can be as little as 3% and lower mortgage insurance rates. The program requires Homebuyer education helping you to better understand the mortgage process.

FHA Loan

Who it's for: First-time homebuyers with lower credit scores or smaller down payments.

Key benefits: Down payment minimums as low as 3.5%, easier credit qualifications compared to conventional loans and the loan is insured by the Federal Housing Aministration (FHA). 

When to consider: If you have a lower credit score or struggle saving for a larger down payment, this option could be ideal for you. It offers more flexibility in qualifying.

VA Loan

Who it's for: Veterans, active-duty military, and certain members of the National Guard and Reserves.

Key benefits: In some cases, no down payment is required. It also offers lower interest rates, no private mortgage insurance (PMI) requirements and simpler qualification standards.

When to consider: If you're a veteran or active-duty service member, this could be one of the best options due to its favorable terms, especially for those who want to avoid a down payment.

USDA Loan

Who it's for: Homebuyers purchasing in rural or suburban areas.

Key benefits: 100% financing — no down payment required, competitive interest rates and low mortgage insurance. Income qualifications apply, typically for lower to moderate-income buyers. 

When to consider: If you’re looking to buy a home in a rural area and meet the income qualifications, a USDA loan could be an excellent option for minimizing upfront costs.

Credit Score and How It Affects Your Mortgage

Your credit score plays a big role in determining the interest rate you’ll receive on your mortgage. Lower credit scores typically pay higher interest rates and make qualifying for a mortgage more difficult. Understanding your credit score and what makes up your credit report is crucial to building credit. Our MidMo Buyer Ready Program reviews your credit, and works with you, to improve or build credit in order to qualify for the home of your dreams.

What is Escrow?

Your monthly mortgage payment will include more than just the principal and interest. The monthly payment will also include real estate taxes and homeowner’s insurance. Each month when you make a payment, the real estate tax and homeowners insurance portion of the payment is put into an escrow account. This account will accrue funds until the date the home insurance renews or when taxes are due. The escrow account will then distribute the funds from the account to pay these items.

What is PMI? (Private Mortgage Insurance)

If you put down less than 20% of the purchase price, your lender may require PMI, which helps protect the lender in case you default on the loan. PMI is typically removed from the loan once the loan amount has been paid down below 80% of the home value. FHA loans have PMI for the life of the loan.

Final Thoughts

Buying your first home is an exciting and rewarding experience, but it comes with a lot of important financial decisions. MidMo Bank's focus on first time homebuyer education sets us apart. Our Buyer Ready Program educates buyers on what makes up their credit score and how to build and improve those scores. In addition, we aid in understanding the financial planning involved with budgeting and saving for a home purchase. Starting this process early and working with our mortgage team to plan for the home of your dreams will not only educate you on the process, but will set you up for financial success. Happy house hunting!