Homeownership

6 Common first-time homebuyer loan programs

How to choose the best home loan program for you from among 6 common choices.

Key takeaways:

  • As a first-time homebuyer, you have many decisions to make, but one of the most important is choosing the best mortgage program for your needs.
  • Different buyers qualify for different loans; your background and special loan needs will determine the right option for you. There’s a mortgage option for just about everyone.
  • An Alaska USA Mortgage Company loan specialist can help you find the home loan program that’s right for you.

 

First-time homebuyers have many decisions to make, but one of the most important is choosing a home loan. Different types of buyers qualify for different loans, but what’s best for one person may not be a good fit for another. Mortgage interest rates, requirements for down payments or mortgage insurance, loan terms, fees, and closing costs all impact the amount you will pay each month, so it’s important to choose your mortgage wisely.

Regardless of which program you choose, your home-buying process will go more smoothly if you get preapproved for a home loan. The preapproval process will tell you how much you’ll be allowed to borrow; preapproval also lets sellers know you are a serious buyer. A good loan officer will help you get preapproved for the best mortgage for your situation. 

 

Common home loan programs for first-time buyers

Home loans fall into three basic categories: conventional loans (including fixed- and adjustable-rate mortgages), government-backed loans such as VA, HUD, USDA, and FHA loans, and portfolio loans.

 

1. Conventional Loans

Conventional loans offer competitive rates, multiple down payment options, and flexible terms.

Most conventional home loan programs give you a choice of either a fixed-rate or adjustable-rate mortgage (ARM). The interest rate for the fixed-rate option remains the same throughout the life of the loan, which allows you to ‘lock in’ and better predict your monthly mortgage costs over the life of the loan.

The interest rate for an ARM, however, changes over time, increasing or decreasing according to an economic index. An ARM typically has a lower initial interest rate than a fixed rate option. For example, a 5/1 ARM has a set interest rate for the first five years—usually lower than the fixed-rate option at the time—then the interest rate, and your monthly payments will change every year after unless you decide to refinance. If you intend to sell the house after a few years, an adjustable-rate mortgage with a lower initial interest may save you money over a fixed rate option.

 

2. FHA Loans

Federal Housing Administration loans are popular with younger home buyers because they typically have smaller down payment requirements, more flexible income rules, and more lenient credit standards.

An FHA home loan is backed by the U.S. Department of Housing and Urban Development, so if you default and your house isn’t worth enough to pay off the mortgage, HUD will buy your home from the lender. This government guarantee makes an FHA loan easier to qualify for than a conventional loan because they pose less risk to the lender. Like a conventional loan, FHA loans typically have mortgage insurance requirements that must be factored into the amount you pay each month.

 

3. VA Loans

If you have any type of U.S. military service in your background, this is the loan you should consider first.

VA loans have low-interest rates, no private mortgage insurance requirements, and no required down payment, which allows you to borrow up to 100% of the money needed to purchase your home. This loan, guaranteed by the Veterans Administration (VA) and available to military veterans and active-duty servicemen and women, is only available through VA-approved lenders like Alaska USA. Our Certified Military Housing Specialists are well versed in military language, rank, and pay systems, and can help you get into the home you want—or help you refinance your current home if you prefer. 

 

4. HUD Section 184 Indian Home Loan Guarantee Program

This government-backed home loan program is designed for American Indian and Alaska Native families, tribes, Alaska Villages or tribally designated housing entities. The mortgage program supports borrowers by requiring a smaller down payment and providing flexible underwriting requirements. The option is limited to single-family housing with fixed-rate loans of 30 years or less.

 

5. USDA Rural Development (RD) Loans

Designed to improve the economy and quality of life in rural America, this loan provides home funding for people who want to live in rural areas.

About 97% of the U.S. is within a USDA Rural Development-eligible area. The Rural Development Loan program has some of the lowest interest rates available, no down payment requirements, reduced mortgage insurance requirements, and allows you to borrow 100% of the money needed to purchase the home. But there are strict rules about who qualifies. Your household income cannot exceed a certain percentage of the area’s median income, and the monthly payment, including principal, interest, taxes, and insurance, cannot be higher than a set portion of your monthly income. Ask a loan officer for details about these qualification limits.

 

6. Portfolio Loans

Portfolio loans have special terms that have been created by the lender to offer a wider variety of options for homebuyers.

Alaska USA Mortgage Company has a variety of unique Portfolio Loans to fit your needs. Want to avoid a down payment? Try a 100% Financed Portfolio Loan and use the money you save for something else. Looking to buy a more expensive home? You'll want a fixed- or adjustable-rate Jumbo Loan to finance it. Bottom line, if you’ve got unique financing needs, ask one of our mortgage loan originators if there’s a Portfolio Loan that works for you.
 

Did you know?

Your credit score can impact both your interest rate and the amount of down payment required. For example, a better credit score could drop your required down payment for an FHA loan from 10% to less than 5%. Some loan programs, like the USDA Rural Development loans, have a minimum required credit score. It pays to build and maintain good credit.

First-time homebuyers meeting their mortgage specialist

Get expert advice

Meet with a loan specialist at Alaska USA Mortgage Company to find out which program is right for you.

Related content

Couple celebrating home purchase

7 Key Steps to Buying a Home

Here’s what you need to know about buying your first home.

Couple meeting with a loan specialist to refinance their mortgage

Should I Refinance My Mortgage? 3 Signs It May Be Time

Three ways to tell if it’s a good time to refinance your mortgage.

Couple sitting on their front porch swing together.

How Much Homeowners Insurance Do I Need?

Protect yourself by having the right homeowners insurance coverage.

Man checking email on his smartphone.

Knowledge is power

Equip yourself to make smart financial decisions in every stage of life—subscribe for financial know-how and more.