Historically, the typical default term for a first-time mortgage was 25 years.
However, with the advent of low interest rates and a more flexible attitude from mortgage providers, things are changing.
According to the Financial Conduct Authority, two thirds of first-time buyer mortgages have terms that go beyond 25 years. In 2006, it was just one third. This has led to the average mortgage term rising to 30 years, with some mortgage terms going beyond that and up to 40 years.
So, why would a first-time buyer sign up for a 30 or 40-year mortgage?
For most people, it’s to spread the cost.
If, rather than going for a 25-year term, you choose a 30-year mortgage then your monthly payments will be reduced, giving you more cash to spend on things that are important to you. If you’ve struggled to get enough capital together for a deposit, a longer mortgage term makes owning a house more affordable today.
For people who work in jobs that pay regular bonuses, many mortgages will allow you to overpay up to 10 percent of the capital every year in a lump sum. So, you could take a long-term mortgage with low repayments, then pay off chunks with your annual bonus, for example.
However, there are considerations when opting for a longer mortgage.
The first is that, though your monthly payments may be less, over time you will pay more. According to the Times:
“A first-time buyer would pay £867 a month if they took out a 25-year mortgage, based on the typical loan size and a 2.25 percent rate, while taking out a 35-year deal would cut the monthly repayment to £684 a month. But over the course of the 35-year deal they would pay £27,311 more in interest.
Another consideration is that even if you start paying a 35-year mortgage off when you’re 30, you will be near retirement age when you pay it off. This is, of course, something you need to make provisions for as you get older.
So, on the one hand, 35 and 40-year mortgages give you smaller monthly repayments while 25-year mortgages could mean your mortgage is paid off when you’re middle-aged. Ultimately, there’s no one-size-fits-all rule when it comes to mortgage length.
The best solution is to talk to an independent mortgage broker like Charles Cameron & Associates who’ll take your personal circ*mstances on board and help you make a decision that’s tailored to your needs and expectations.
FAQs
So, why would a first-time buyer sign up for a 30 or 40-year mortgage? For most people, it's to spread the cost. If, rather than going for a 25-year term, you choose a 30-year mortgage then your monthly payments will be reduced, giving you more cash to spend on things that are important to you.
What is the best option for first time buyers? ›
Government-backed mortgage loans
The Federal Housing Administration (FHA), Department of Veterans Affairs (VA) and Department of Agriculture (USDA) back mortgage programs that are often an option for first-time homebuyers.
What is it called when you buy your first house? ›
This type of borrowing is called a first mortgage loan.
What is the description of a first-time buyer? ›
In general, a first-time buyer is someone who is purchasing a property for the first time and does not already own a residential property. However, let's delve deeper into specific scenarios that may affect your eligibility as a first-time buyer.
What is the IRS definition of a first time homebuyer? ›
A first- time homebuyer is an individual who, with his or her spouse if married, has not owned any other principal residence for three years prior to the date of purchase of the new principal residence for which the credit is being claimed.
What type of loan is best for first time buyers? ›
Here are some of the most popular federal programs for first-time home buyers:
- Government-Backed Home Loans. Government-backed mortgages can allow you to get a home with a low down payment or poor credit. ...
- Conventional 97 Mortgage Loan. ...
- Good Neighbor Next Door. ...
- HomePath® Ready Buyer™ Program.
An FHA loan can grant many borrowers the opportunity to become homeowners – especially those who have a somewhat low credit score and a reasonably high amount of debt. Known to be more forgiving and less restrictive than some other loan types, FHA loans present numerous benefits.
What credit score is needed to buy a house? ›
Credit score and mortgages
The minimum credit score needed for most mortgages is typically around 620. However, government-backed mortgages like Federal Housing Administration (FHA) loans typically have lower credit requirements than conventional fixed-rate loans and adjustable-rate mortgages (ARMs).
How to buy a house for beginners? ›
Conduct a thorough home inspection and appraisal before finalizing your purchase.
- Make Sure You Are Ready. ...
- Set a Budget. ...
- Find the Right Property. ...
- Shop for Financing Options. ...
- Get Pre-Approved. ...
- Find a Real Estate Agent. ...
- Go House Hunting. ...
- Make an Offer.
Conforming loan down payments can vary from 3% to 20% or more, so for a $500,000 home, you'd need between $15,000 and $100,000. Conforming loans, once again, follow Fannie Mae and Freddie Mac guidelines and usually offer competitive terms.
First-time homebuyers are those who have never owned a home or have not owned a home in the last three years. Under this definition, a first-time buyer might qualify for a more affordable mortgage with down payment and closing costs assistance.
How much deposit do you need for a house? ›
What is the minimum deposit for a mortgage? The minimum deposit you need for a Nationwide mortgage is 5% of the property price, which would be a 95% mortgage.
What is the buyer first approach? ›
Buyer-first selling is about reframing B2B transactions as buyer-driven activities, rather than seller-driven activities. To do this, a salesperson must place the buyer and their needs at the center of the sales process, from outreach to close and beyond.
How does buying a house affect your tax return? ›
The main tax benefit of owning a house is that the imputed rental income homeowners receive is not taxed. Although that income is not taxed, homeowners still may deduct mortgage interest and property tax payments, as well as certain other expenses from their federal taxable income, if they itemize their deductions.
Does the IRS know I bought a house? ›
Not exactly. In reality, if the IRS does not already know when you buy or sell a house, it is just a matter of time before they find out.
What is the definition of a first-time home buyer IRA? ›
First-Time Home Buyers
The IRS defines a first-time home buyer as someone who had no interest in a primary home for 2 years prior to the date of closing on the home. This requirement also includes your spouse.
What is the most common mortgage for first time buyers? ›
Most first-time buyer mortgages are repayment mortgages (rather than interest-only mortgages), so you'll pay back part of what you owe each month, plus interest. The size of your regular payments will depend on: The mortgage interest rate.
Does Tennessee have a first time home buyer program? ›
There are a number of programs in Tennessee to help first-time homebuyers. Each has its own set of requirements (as well as its own pros and cons), which we cover below: Great Choice Home Loan Program. Homeownership for Heroes.
What is the best mortgage company for first time buyers? ›
- Guaranteed Rate. : Best mortgage lender for first-time buyers.
- Bank of America. : Best national bank.
- Rocket Mortgage. : Best for customer support resources.
- PNC Bank. : Best for repayment term options.
- Chase Bank. : Best for multiple assistance programs.
- U.S. Bank. : Best for current U.S. Bank customers.
- New American Funding. ...
- SoFi.
How Much Is The Average Down Payment On A House? The average first-time buyer pays about 6% of the home price for their down payment, while repeat buyers put down 17%, according to data from the National Association of REALTORS® in late 2022. The median home sale price in the U.S. was $416,100 as of Q2 in 2023.
