Whether you’re a first-time or a seasoned homebuyer, doing your due diligence when selecting a mortgage can save you thousands of dollars over the life of your loan.
There are numerous home loan options, but they are definitely not one size fits all. The perfect mortgage for a family looking for their forever home might not be the most affordable choice for a single person looking to build equity in a starter home.
Let’s take a closer look at how to determine which types of loans are better for starter home vs. forever home mortgages, including factors such as credit score, down payment, interest rate, and other qualification requirements.
A starter home is generally defined as a house that a first-time buyer can afford but is likely to outgrow in a few years. These homes are best for those looking to build equity in a home for 3-5 years before upgrading.
Starter homes are usually priced on the lower end of the local real estate market because they are older or in need of updates. These homes likely don’t have every feature the buyer wants, but they are a good place to start.
Individuals or families interested in settling down and joining a community often look for a forever home. These houses will meet the buyer’s needs for many years because they have room to grow or can be renovated to fit the buyer’s exact requirements.
Forever homes tend to be larger, making them more expensive than starter homes. However, buyers often have money from the sale of another house to use for a down payment.
To help you narrow down which type of loan will work best for you, we’ve compared the pros and cons of some of the most popular types of mortgages to determine whether they are best for a starter home, a forever home, or both.
A conventional mortgage locks in your interest rate for a 15- or 30-year term. Conventional mortgages are an excellent forever home mortgage option because the interest rate and mortgage payments stay the same for the life of the loan.
However, it’s important to note that monthly payments may fluctuate due to changes in taxes or homeowners insurance rates.
Conventional loans can also be used for a starter home. However, they often have higher interest rates than other loan types and require a significant down payment to avoid paying monthly mortgage insurance.
This type of mortgage is best for move-up homebuyers or first-time buyers with a substantial down payment.
Adjustable-rate mortgage (ARM) loans start with a low fixed-interest rate for a specified period. After the initial period, the loan’s interest rate adjusts with current market conditions throughout the remainder of the term.
With low interest rates and lower monthly payments, ARM loans are a great starter home option for buyers who will be ready to upgrade their homes before the adjustment period starts.
This type of mortgage is best for first-time homebuyers.
FHA mortgages are insured by the Federal Housing Administration (FHA) and have less stringent qualifications than other types of loans. This is one of the best mortgages for first-time buyers because of the low down payment and flexible credit and income requirements.
This type of mortgage is best for first-time homebuyers.
VA loans are only available to eligible military personnel and their families. Financing for these mortgages is provided by private lenders and guaranteed by the U.S. Department of Veterans Affairs (VA). This reduces the risk for the lender, allowing them to give borrowers exclusive benefits.
VA loans offer low interest rates, no down payment requirement, and flexible credit and income guidelines. Because these loans are a military benefit, they can be used multiple times, so borrowers don’t have to choose whether to use their loan for a starter or a forever home; they can do both.
This type of mortgage is best for first-time homebuyers and move-up homebuyers.
These mortgages are guaranteed by the U.S. Department of Agriculture (USDA) to stimulate growth in rural areas through affordable housing opportunities.
A USDA loan makes homeownership possible for many first-time buyers in rural and suburban areas by offering no down payment, flexible credit requirements, and lower mortgage insurance rates.
This type of mortgage is best for first-time homebuyers.
Jumbo loans can help buyers finance luxury properties or homes in highly competitive real estate markets. This type of mortgage financing is for loans that exceed the limits set by the Federal Housing Finance Agency. Jumbo loans cannot be guaranteed, purchased, or backed by Fannie Mae or Freddie Mac, so they are a higher risk for lenders.
Jumbo loans are best suited for forever home purchases because of their strict qualification requirements, including:
This type of mortgage is best for move-up homebuyers.
It’s important to think about your long-term goals, budget, and financial health when you begin shopping for a mortgage. The best forever home mortgage options may not be suitable for a first-time homebuyer.
FFB Mortgage Lenders specializes in helping first-time homebuyers, experienced homeowners, military personnel, and anyone who appreciates personalized service find their perfect loan.
Want to dig even deeper into the homebuying journey? Download The Essential Checklist for First-Time Homebuyers to get answers to some of the most frequently asked questions.