First Time Buyer and Equity Loans

First time buyer loans are rather straightfoward–they are for persons who are buying a home for the

first time. Equity loans, on the other hand, are loans that are issued to borrowers who already own a

home. The equity of the home is put up as collateral against the loan, meaning that if the buyer fails

to meet expected payments, then he is at risk of losing his home.

Thus, first time buyer loans are different, since the borrower may not have collateral, such as a home

to put on the burner, which is why the lender will consider the value of the home for purchase and

use it in the equation to determine if the borrower is qualified for the loan. In other words, if the

home purchased has equal equity to the mortgage loan, then the lender most likely will offer the

loan. If the equity on the home for purchase is below the loan amount, then the lender may require a

steeper upfront payment in addition to higher interest rates. The lender may also include guarantees

in the contract, meaning that the buyer will agree to certain stipulations, including paying off

penalties.

Thus, first time buyer loans are loans offered against potential equity. The house for purchase is the

collateral against the loan. The lender will often repossess the home if the buyer fails to make

payments. Therefore, before agreeing to any contract involving large sums of cash, borrowers are

wise to read all details involved in the transition. Few other loans are available for first time buyers.

Fanny Mae and many other programs are available that help first time buyers without equity or

collateral to buy homes. Many of the homes sold by the Fanny Mae Organzation are low cost homes,

since they were equity homes that buyers could not payoff.

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