A first time home buyer grant is typically a grant targeted at/for people buying their first house- even a starter house. And, first time home buyer grants don’t have to be paid back. However, they do offer you some “free money”. That “free money” can come in the form of tax credits and rebates.
The way it works is that when you use gift funds to purchase your new home, the cash you receive may be tax-free (that is, you never have to pay taxes on the money). The money is then matched by matching the interest rate you agree to pay. The more you use the funds the higher your monthly payment will be.
Using this type of funding to purchase a home is a very smart financial move. Not only are you providing cash to reduce your monthly payments, but also reducing the amount of money you need to borrow or refinance your existing mortgage. In most cases your new home loan will qualify for a conventional loan with 3 percent interest, and a conventional loan with a longer term will qualify for a home equity loan.
These are both conventional loans. Except for the lower interest rate and longer terms, the major difference between these two loans is that a conventional loan is a long-term, fixed interest loan while first time home buyer loans are usually unsecured loans. So, what does this mean? Well, since your new home mortgage is an unsecured loan, the risk to your lending institution is greater. They know that you may not be able to make your monthly payment if something happens to go wrong. However, on the other hand, because your mortgage loan is a fixed rate loan, the lender has the ability to adjust your interest rate in the event of inflation to ensure they receive their money; however, if the economy slumps, they will have to absorb the loss and your interest rate will most likely increase.
So, where does this leave the first time home buyer? Well, the best strategy is to get a fixed rate, low cost loan as soon as possible. The reason being, if you wait too long to purchase a new home, the interest rate will increase or your mortgage payment will increase. One other advantage to obtaining your loan early is that most lenders offer a discount for the first several months of home ownership when compared to the next five or ten years. If you are a first time home buyer, it may behoove you to look into this possibility.
Now, the question may arise as to how do you find out if you are a first time home buyer? And the answer to that question is simple. You need to obtain your mortgage loan and submit to a credit check; however, since this is not a common practice for the majority of lenders you will probably have to do it online. There are three ways that you can do this online; through a traditional lender such as your local bank or credit union, you can use a broker that has connections with multiple private mortgage insurance companies. Or, you can utilize one of the free online resources available to help you shop for loans.
If you have done your homework and found that you are indeed a first time home buyer; congratulations! You are now well on your way to becoming financially stable and securing your dream home. Just remember, one of the most important financial decisions that you will make is the choice of a lender. Choose wisely; after all, you will be entrusting your house to them for an extended period of time. You want to be sure that you are working with a trusted company.
Private mortgage insurance companies have been notorious for charging very high interest rates. This is why it is important for you to do your research and shop around for a lender that offers competitive interest rates. To do this you will need to access one of the free mortgage calculators available online. Enter in the purchase price of your home, the interest rate that is being charged on your loan and a few other details into the calculator. This will give you an accurate idea of what your monthly payment will be.