Purchasing your first home is one of the most significant financial decisions you'll ever make. Understanding your mortgage options is crucial to making an informed choice that aligns with your financial goals.
Understanding Different Mortgage Types
When exploring mortgage options, you'll encounter several types of loans, each with distinct advantages:
Conventional Mortgages
These are the most common type of mortgage, typically requiring a 20% down payment to avoid private mortgage insurance (PMI).
Great rates for borrowers with good credit
15, 20, or 30-year options
With 20% down payment
FHA Loans
Federal Housing Administration loans are ideal for first-time buyers with limited savings:
As low as 3.5%
More lenient credit requirements
Transferable to future buyers
Pro Tip
Get pre-approved before house hunting. This shows sellers you're a serious buyer and helps you understand your budget constraints.
Calculating Your Budget
The 28/36 Rule
Housing Costs
Maximum percentage of gross monthly income for housing expenses
Total Debt
Maximum percentage for all debt payments combined
Your housing costs shouldn't exceed 28% of your gross monthly income, and your total debt payments shouldn't exceed 36%.
Don't Forget Additional Costs
Remember to factor in costs beyond your monthly payment: