Atlantic Blog

Be honest, have you ever pulled up Zillow or local listings and scrolled endlessly, dreaming of all the houses in your area?

Everyone dreams of owning their perfect home but making it a reality can feel almost impossible. The market can seem volatile, and by the time you find the house that fits all your needs, it might be outside of your price range or, even worse – off the market! You can take steps before the home-buying process, especially as a first-time buyer, to make it less stressful and mystifying so that you’re fully prepared when the time is right. 

Before you even consider calling realtors or touring open houses, you need to know the budget you’re working with and how you’ll finance your home. Need budgeting tips? Check out our previous blog: 6 Reasons Why Creating a Budget is Important.

Reviewing home loan options isn’t as fun as touring an open house, but it’s an important step in making that dream home a reality. A major barrier to homeownership is the upfront expenses, such as closing costs and your down payment. Luckily, various loans and programs are available to help, and understanding how these loans function could help you squeeze more money out of your budget and secure that perfect starter home. 

Conventional Fixed-Rate Mortgage Loan

A major perk of conventional fixed-rate mortgage loans is that the interest rate will remain the same throughout the life of the loan. It provides financial stability because your loan’s principal and interest portion will always be the same – the only fluctuations coming from possible changes in property taxes or homeowner’s insurance.

Most lenders will require you to add PMI (private mortgage insurance) to your loan if you cannot make a down payment of 20% or more. PMI protects the lender in case you cannot repay your loan. This coverage is typically removed once you have 20% equity in your property.

A fixed-rate mortgage may be a good fit for you if:

• You crave a consistent monthly payment.
• You have a stable income & secure employment.
• You have sufficient funds to cover a larger down payment (or can afford PMI).

Conventional Adjustable-Rate Mortgage (ARM) Loan

With an adjustable-rate mortgage (ARM) (which you can learn more about in our past blog: What is a 10/1 Adjustable-Rate Mortgage and How Can it Save you Money?) , commonly called a variable-rate mortgage, the rate and monthly payment can fluctuate. These loans are becoming more common as interest rates rise due to inflation.

Typically, you’ll find ARMs formatted in a manner like 7/1. This means that the interest rate will remain fixed (unchanged) for the first seven years. Afterward, the rate can fluctuate annually depending on the economy. In this example, the introductory period is seven years and usually comes with a lower interest rate than traditional fixed-rate mortgages.

An ARM can be tricky to handle after the introductory period. If mortgage rates increase, your payment will likely rise. However, these loans help break barriers during periods of inflation. For example, if you lock in a lower introductory rate today, the loan will not adjust for several years. In that time, mortgage rates could drop and secure you a lower rate.

Many people use these loans if they know they will only live in the home for a short time. An example includes first-time homebuyers who are looking for a starter home. During the introductory period, they will enjoy lower interest rates. Then, they can sell the house after several years and move into a larger property – before any rate adjustments ever occur.

An adjustable-rate mortgage might be an ideal choice if:

• You want to lock in a lower interest rate initially.
• You plan to refinance or sell your home before the introductory period expires.
• The economy is experiencing higher-than-normal inflation levels.

FHA Loan

FHA loans are mortgages insured by the Federal Housing Administration and issued by an approved lender. These home loans are geared toward potential homebuyers with lower income levels. They are highly sought after by first-time buyers due to their lower down payment requirements.

With an FHA, homebuyers can put down as little as 3.5% if their credit score exceeds 580. Buyers with lower scores could still qualify but must make a larger down payment.

An FHA loan may be right for you if:

• You’re looking for a lower down payment option.
• You have a lower credit score and are working to repair your credit.
• You have a higher debt-to-income ratio (common among young adults just starting out).

CU Promise Loan

In Maine, CUSO offers its CU Promise Home Loans through partnerships with credit unions. These loans are perfect for first-time home buyers, combining accessibility, flexibility, and trust. When applying for a CU Promise loan, CUSO guarantees a same-day approval decision, a guaranteed closing date, and local servicing.

Are you looking for a low down payment? You need help but have a lower credit score? The CU Promise product line has multiple flexible loans to meet your homebuying needs. Similar to conventional financing, these loans have a fixed interest rate that should make it easier for you to create a budget for your new home. 

• CU Promise 90 Loan requires a 10% downpayment, but doesn't require you to have Private Mortgage Insurance and is open to a wide range of credit scores. 
• The CU Promise 97 Loan can massively minimize upfront costs for people with fantastic credit. It covers up to 97% of the sale price or appraised value, allowing you to make a much smaller downpayment. 

Learn more about the CU Promise line on CUSO's website or by talking to one of our mortgage experts! 

A CU Promise loan may be a good fit for you if:

• You want a lower down payment.
• You want a fixed interest rate.
• You want flexibility, accessibility, and support to best meet your specific needs.

VA Loan

A VA Loan is a special loan offered by the Department of Veterans Affairs (VA) to help service members, veterans, and surviving spouses purchase a home. VA loans require no down payment or PMI (private mortgage insurance). Because of these financial benefits, more barriers are removed, and potential homebuyers can qualify for a higher mortgage amount than through other loan programs.

A VA loan might be ideal for you if:

• You serve or served in the military, or you qualify as a surviving spouse.
• You have limited funds available for a down payment.
• You want to avoid private mortgage insurance (PMI).

USDA Loan

The U.S. Department of Agriculture offers a homebuyer’s assistance program, and contrary to what you may initially think, you don’t have to live on a farm to be eligible. Their program primarily targets rural and some suburban areas and offers 100% financing. The USDA does have some income limitations on this program, which vary by region. To learn more about the USDA’s income and property eligibility requirements, visit the USDA’s eligibility website.  

A USDA loan may be a good fit for you if:

• You’re buying a home in a USDA-designated rural area.
• You earn a low to moderate income.
• You have limited funds available for a down payment.

State-Provided First-Time Homebuyer Loan

Most states offer their own first-time homebuyer programs. While each state’s offers will vary, they are all designed to remove barriers to homeownership and help residents purchase property affordably. 

MaineHousing has a First Home Loan Program that can help guide you through the journey of purchasing a home! Following their six-step program will make sure you don’t miss a thing during the home-buying process.  

Your state’s first-time homebuyer program might be a good fit for you if:

• You meet the eligibility requirements set by your state.

We’re Here to Help!

If you’re beginning your journey to become a homeowner, we’re prepared to help. Schedule a time to meet with a mortgage specialist and work one-on-one to find the solution that best fits your needs.

You can also join us for our Virtual Home Buyer Seminar on March 20th for priceless tips and answers to all your burning questions from Atlantic's mortgage experts. Register now and make sure that you’re a confident home buyer!

To learn more about your mortgage options, apply online today, or please stop by any of our convenient branch locations or call 800-384-0432 to speak with a team member today.

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The Atlantic blog strives to deliver informative, relevant, and sometimes fun financial information. If you enjoyed this article, please forward it to a friend.

Each individual's financial situation is unique, and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.