First Time Buyer In Today’s Market
Is it an unrealistic goal to be able to buy a home in this market and afford to make the payments, as some say? If you meet certain conditions you could be able to get into your first home even in this market.
Before taking this major step there are a few things you need to know. A few simple steps can make sure you are on the right track to buying your first home, even in this market.
First word of advice is to find out how much you can afford. Talk to a licensed and experienced Realtor in your area, or find an online mortgage calculator. It would be a frustrating waste of time to look at houses that you can’t afford, and it would be less than optimal to look at homes that are smaller than what you need. If you know what your price range is, you’ll start off on the right foot. A good Realtor who is familiar with your local market can help you find the best homes in your price range and help you through the loan application process.
Find out what your credit score is. If there are any errors, this is the time to fix them. If your score is low, start working to clean it up. Your credit score along with your available down payment will play a role in determining what interest rate your will have for your loan. Start looking for cash too. The more that you’re able to put down on your new home, the lower the loan balance will be. This will translate into lower monthly loan payments.
If you don’t have a lot of funds available, don’t worry. There are loans available with low down payments, and even some with no down payment. Many of these will require very little cash up front from the buyer. Today buyers are able to purchase a home with as little as four percent down. Compare that to the average down payment of twenty percent 20 years ago. Many factors will figure into how much you need to put down. There are special loans that require the borrower to put down little or no cash. No down payment loans can be challenging to find in today’s market. Again your circumstances will determine what you qualify for. If you are a veteran you can probably qualify for a VA Loan but low down payments in the form of FHA loans are also available.
The FHA Loan is a low down payment mortgage that requires only a 3.5% down payment. Home buyers in high cost areas used to be unable to get FHA loans because of their relatively low maximum balances. Fortunately the limits have been increased to more than $700,000 in some high cost areas. Many first time buyers have not saved up enough to make a 20% down payment, so an FHA loan with only 3.5% down is an ideal solution. Mortgage insurance is often required if the borrower puts less than 20% down, depending on the loan program. Make sure to consider the cost of this mortgage insurance in your monthly payment.
Borrowers can usually cancel PMI once they reach a certain level of equity in their home. Again this depends on your loan program but is usually between 20 and 22 percent. Keep in mind lenders are required by law to cancel PMI when the equity you have reaches 22% however you can contact the lender and request the PMI be cancelled after you hit 20%.
Putting less than 20% down also frees up that money for other purchases such as new furniture for your new home or you can save it for future payments, debt consolidation or your child’s college education.
The bottom line? Use the resources available and you can be opening the door on your new home, even in this market.
Many homes on the market today are short sales, which take a long time to buy. Another option is to buy new construction, like these Carlsbad new homes. The builder will help you through the process of obtaining a home loan.
