Mortgage Blog

4 Top Mortgage Loan Options for First-Time Real Estate Investors

February 17, 2022 | Posted by: Ronice Harrison

Buying a home as a first-time real estate investor requires you to make a series of decisions. Location, property type, building condition... but none are as important as the right mortgage loan for first-time real estate investors. 

To make the right mortgage loan program choice, you'll need to answer any questions. 

To make sure you answer these questions right, one thing can be your fool-proof guarantee. And, that is correct knowledge.

By studying up on the market and its subtleties, you'll prepare yourself to answer the toughest questions of real estate. Which will inevitably lead you to the perfect deal.

So, below are four common mortgage loan options for first-time real estate investors, now or later.

Read up and decide which route is going to be the best for you.

1) Conventional Mortgage Loans

Conventional loans are the kind of mortgage loan that's not backed by the government.

Basically, this type of loan is most common for home financing, and most buyers end up with it because it's cheaper and has fewer restrictions. However, borrowers interested in a conventional loan program must have a good credit history.

There are two categories within a conventional loan: conforming loans and non-conforming loans.

Conforming loans have strict conditions set by the Federal Housing Finance Agency (FHFA). And they also have an upper limit of $647,200 in the majority of property markets.

On the contrary, the non-conforming version has no FHFA standards, and buyers with extraordinary (good or bad) circumstances can apply for it. Riskier, stricter, and bigger, a jumbo loan is a good example of a non-conformance loan.

And find out how much you can borrow in just one minute, with our Mortgage Calculator.


2) Fixed-rate Loan Type

As the name suggests, fixed-rate loans will have a fixed interest rate forever.

That means there's a non-changing installment amount to be paid every month for the rest of the repayment term.

This option is most suited to buyers who'd like to avoid any ugly surprises along the way… Because wobbly interest rates won't touch your mortgage premiums.

The loan term generally spans between 15 and 30 years, but the lender may offer you to choose any term between 8 to 30 years.


3) Adjustable-rate Mortgage (ARM)

Again, as the name tells, adjustable-rate loans are mortgage options that have fluctuating rather than fixed interest rates. They keep going up and down, adjusting to market conditions.

An ARM loan will usually start low, but with time, the installment amounts may grow larger. Sometimes an ARM may also begin as a fixed-rate loan and continue that way for some years, before becoming adjustable.

For example, a 7year/5month ARM means the loan will be fixed for the first 7 years and will then start to adjust to changing interest rates every 5 months.

Obviously, ARMs can be extremely unpredictable and, therefore, risky. So, borrowers without financial security for the future should not go for it.


4) Government-Backed Loans

There are some useful government-backed loan options in the market as well, aimed at homeowners looking for lower rates and easy terms.

The purpose of these loans is to enable low-income citizens to become homeowners. And that's why with these loans, the down payment is generally set as low as 3.5% of the home value.

Some common types of government home loans include:

a) Federal Housing Association (FHA) Loans: for borrowers that can put down 3.5-10% upfront, with lenient lending standards. That said, the borrower must have a 500 credit score to qualify for an FHA loan.

b) Veteran Affair (VA) Loans: for serving or retired US military officers with up-to-par credit and suitable income. The VA loans can offer 100% financing - no upfront payment required.

c) U.S. Dept of Agriculture (USDA) Loans: for entrepreneurs engaged in agriculture or homebuyers looking to live in rural property.

However, if your income is 115% higher than the average income for the area, you won't be eligible for the loan.

The Bottom Line on Mortgage Loan Options for First-Time Real Estate Investors

So, the bottom line is that there will be numerous home mortgage options before you when you are purchasing a house.

Each option will have some upsides and downsides. Your job would be to assess and scrutinize every available home loan option in light of your financial situation.

Also, make sure you read the fine print carefully. Ideally, get a lending expert on board when fishing for your best loan strategy. Because having professional expertise by your side when making such high-risk decisions never hurts…   

To get in touch with today’s top mortgage lenders, visit AQRE



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