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Understanding Mortgages for First-Time Home Buyers

Homebuying is a complicated process, but knowing your options and researching ahead can keep you on track for making a choice you feel good about now and in the future.

Couple in front of FOR SALE sign with the word SOLD placed across the sign
Couple in front of FOR SALE sign with the word SOLD placed across the sign

There’s a lot to look forward to with homeownership—from tax benefits to return on investment to the comfort of having a place to call all your own. But first, here’s a quick download to homebuying and mortgage must-knows so you can find a home and a loan that fits your financial goals. 

Research your mortgage options. Choosing the mortgage that is right for you can depend on a number of factors, like how much you’d like to pay each month or how long you plan to be in your house. There are some benefits to consider with each mortgage option, so to help you get started here’s a quick overview of the most common loan types:

Fixed-Rate Loans. Fixed rate loans are the most common loan type. Just as the name implies, a fixed-rate loan has an interest rate that stays the same for the length of the mortgage. This is a great mortgage option if you are planning to put down roots in your forever home and value predictable monthly payments. The length of your fixed-rate loan can also have an impact on how high or low that monthly payment is:

  • 30-Year Fixed-Rate Loan: Lower monthly payments, but more interest paid over time.
  • 15-Year Fixed-Rate Loan: Higher monthly payments, but less interest paid over time.

Adjustable Rate Mortgage (ARM). An Adjustable Rate Mortgage is one that has variable interest rates throughout the length of the loan. Typically, these loans have a fixed lower interest rate for the introductory period (3-10 years), after which, the rate adjusts to market value.

This is a great option for securing a lower interest rate or a lower monthly payment. It’s also a good option if you are planning to own your home for a short period of time or are planning to pay off the mortgage balance quickly. There are other factors to consider with an ARM, such as ARM caps and adjustment frequency, so be sure to look at all the details ahead of time. 

Using a mortgage calculator can help you to explore different loan options, whether you’re actively searching for a loan or making a plan for the future.

Get prequalified. A pre-qualification can give you a leg up in a competitive market and can ease your mind when taking on the task of financing a home—get started here. 

Shop using your budget, not your max loan amount.  You will likely qualify to borrow more than what is comfortably affordable. So set a pre-determined amount that fits your budget and stick to it.