First time home buying guide: Buying a home can be a complex process, especially if you are a first time home buyer. Some of the challenges that you may face when buying a home include:
- Student loans
- Debt to Income Ratio
- Credit Score
- No prior experience of home buying etc.
Currently, the mortgage rates are at historic lows and many lenders are offering a low down payment mortgage. This allows responsible home-ownership possible with little money down.
This article has been written to provide a first time home buying guide for the beginners. There are a few steps that you will need to keep in mind before you go out shopping for a house. These are:
First time home buying guide: what is a down payment?
A down payment is an amount that you pay from your own savings or a bank account. When buying a home, a lender will require you to put a percentage “down” towards your mortgage.
For example, if you want to buy a house that costs $200,000 and the down payment you want to make is 10%. Then your mortgage will be for 180,000; while the $20,000 you pay from your own savings will be considered the down payment.
After reading the above-given numbers, you might be thinking, “what exactly is the amount of down payment I should make?” don’t worry, the next part of this article will give you the answers:
How much down payment you actually need to make:
The second thing you are going to learn from this first time home buying guide is about how much down payment you should make.
Remember, it is totally up to you as to how much down payment you want to make. You can make a down payment from 3% to over 20%. Some loans will allow you to obtain a mortgage for 100% of the purchase price, but the property may need to meet certain characteristics. But remember, each decision you make comes with different outcomes. Such as:
- Paying less down payment means a higher loan amount and larger monthly installments.
- Down payments of 20% or greater do not require Private Mortgage Insurance (PMI).
Getting a loan might sound difficult at first, but don’t worry! There is a vast range of loans that are available for the first time home buyers in order to make the process easier for them. These loan programs are:
- FHA Loan
- VA Loan
- USDA Loan
- Conventional Loans
- HomeReady™ Mortgage
This first time home buying guide will give you a brief idea about all of these programs:
3.5% of the actual purchase price of the home is the minimum down payment required for an FHA Loan.
A majority of first time home buyers usually choose an FHA loan because of the low down payment requirement. Also, an FHA loan has a fairly low credit requirement of 620. It’s important to note that many lenders may have an increased credit requirement for the loan above the FHA minimum standards.
This loan program is basically for the US military members and their veterans. These loans also provide 100% financing. A 100% financing is something when a bank will lend you 100% amount of the actual price of the house. This type of financing doesn’t require you to make any down payments whatsoever.
If a buyer qualifies for a VA loan, it is important to note that many lenders can do them. Lenders like Fidelity and Fairway Mortgage can process VA loans and are sometimes more efficient than USAA. It’s important to shop your mortgage lender to make sure you are getting the best service.
These loans are usually for rural and suburban areas across the country. Just like VA loans, USDA loans also provide 100% home financing. USDA loans are only available in certain areas where the population density is much lower than in the Metro area.
Conventional 97 loans are for people with average or above average credit rating. These loans start from as low as 3% down payment and they don’t provide you the 100% financing. The maximum limit of getting conventional loan is $420,000.
Getting down payment assistance:
Before I wrap up this first time home buying guide, I would like to tell about some additional programs that can help you cover your finances. These programs are known as DPAs (Down Payment Assistance Programs).
Making a down payment is considered to be the biggest hurdle by many first time home buyers. This is because they don’t have any idea that just like getting a mortgage, they can get a DPA too.
DPA programs are often run on a state or county level to encourage growth in certain areas. Many first time home buyers don’t apply for these programs because they are unaware of their existence. It is important to work with a local lender who is familiar with DPA programs. They can often guide you through the application and approval process for the down payment assistance.
The main purpose of the ” first time home buying guide” , is to provide an idea about the hurdles you might face. And then providing you the guidance as to how can you overcome those hurdles by choosing a suitable loan program for your purchase.