First-Time Buyer Loans vs. Home Equity Loans: Two Financing Avenues for Home Buyers
The steps involved in purchasing a home for the first time can be intimidating and stressful. However, you can avoid feeling overwhelmed and expedite the process by doing your research. One of the crucial points that you should research and weigh is whether a first-time buyer loan is more well suited for you than a home equity loan. This is a personal decision that depends on your needs. The following synopsis sheds light on the two key types of home loans. We aim to help buyers like you choose what the best course of action is.
First-time Buyer Loans:
Lenders seek to extend first-time buyer loans to those looking to purchase in a designated census tract. This census tract is usually those who have limited resources and have lower income levels. First-time buyer loan often applies to a certain geographical area designated as low-income areas. For example, a household with an income of below 70% of the county’s median income would qualify for a first-time buyer loan. Such a loan as the following features:
- Accepts a very low (or no) down payment
- Covers all or part of the interest costs
- Limits fees that lenders are authorized to charge
- Extends grants
- Forgives loans
Advantages of First-time Buyer Loans:
First-time buyer loans allow you to attain the status of a homeowner more easily. Since homeowners can maintain their properties and contribute to the economy, communities also stand to benefit from first-time buyer loans.
Disadvantages of First-time Buyer Loans:
First-time buyer loans have strings and restrictions attached to them. First, that usually place a dollar limit on the property to be purchased. This means that you will be restricted to homes on the lower end of the spectrum. Second, the property must be used as your primary residence. Third, the targeted property must satisfy certain requirements, such as being free from safety hazards and being kept in good condition.
Some of the main pitfalls that you may encounter with a first-time buyer loan include:
- Getting a lower value home which may not be of interest to a prospective purchaser
- Selling the property may result in losing some of the benefits offered by the first-time home buyer loan.
- Consumers may be limited to a shortlist of loan types.
Home Equity Loan Comparison:
With home equity loans, you can obtain financing by pledging property as collateral. These loans are also attractive to potential buyers who are seeking to borrow a large sum of money or who lack good credit.
Lenders who handle these home loans are generally safe and will more likely be more open. This is because the borrower has no chance of disappearing with the house or hiding it in case of default. Also, because buyers are more likely to make payments if they risk losing the home.
Advantages of Home Equity Loans:
- It is easier to qualify for if you do not have good credit
- Mortgage rate
- Homebuyers can get a relatively large loan
Disadvantages of Home Equity Loan:
Borrowers who default on their loan payments risk forfeiture of their home
In summary, your first home purchase is a bid deal that involves investing money, time, and energy. First-time loans and home equity loans have helped many buyers in overcoming money hurdles. It is important that prospective home buyers like you shop around and take into account the risks of each option available. The right preparation can only bring you positive results and help you pick the best deal possible.