Pros and Cons of First Time Homebuyer Loans

Lenders make use of several programs initiated by the federal government to present loans catering to first time homebuyers. A first time homebuyer is an individual not listed on a deed as the proprietor of a real estate property. The loans aim to ease the path of homeownership for potential borrowers. However, the products may not be apt for every first time buyer. You should judge the benefits and shortcomings of these products before settling down for a mortgage product.


Most first time homebuyer loans require a low down payment. Lenders charge low mortgage fees and interests for these packages. Some lenders allow the option of deferred payments when a borrower faces a financial crisis.

The Federal Housing Administration (FHA) sanctions all mortgages with a down payment as low as 3.5% of the total worth of the house. In addition, it allows for several features for the first time packages including a lower credit score and reduced closing costs than usual. It is essential to note that the FHA does not actually make available the funds. Instead, it offers a guarantee to the lenders participating in the federal loan program. If the borrower defaults on the mortgage repayments, the FHA compensates the lender. The borrower has to pay a mortgage insurance premium every month.

Benefits of the Products

An individual with a not so perfect credit history can hope to buy a home. The down payment requirement is not high so that you may put aside your funds for essential expenses. Since the interest rates are low, the monthly mortgage reimbursements are manageable enough. The first time offers on loan products bring the possibility of home ownership within the reach of many citizens.

Drawbacks of First Time Loans

Lenders make avail first time packages to potential homebuyers with an upper limit on the funds available. In most cases, you could get about 60% to 75% of what you get for a conventional loan program. A lender fixes the loan amount for a home, based on the property prices in that area.

An additional shortcoming of these products is the difficulty in getting a first time loan for an investment property. Although the FHA has recently allowed for the inclusion of rental properties in its program, availing of a first time loan for buying a property and renting it out would present many hurdles for a borrower.

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