With everything that a buyer must keep in mind, buying a home for the first time might have your head spinning. However, with some careful planning and research, it can be straightforward, even easy.
As a first time homebuyer who needs to whip their finance into shape, the key lies in planning early. The following are some savvy moves you can make today to get on track provided by Jim Oursler from granitefoundationrepair.com.
1. Check your credit score.
Your credit score is an important measure of your financial health. If it’s good, then great! If not, then you can make it better. The idea is to ensure that it’s as high as possible before applying for your home loan.
Credit Sesame and Credit Karma are two sites that you could use to check your credit rating at no cost.
Now, a good credit score starts at a base rating of 650 and can go as high as 900. The higher it is, the more trustworthy you’ll be to your lender.
If your score is lower than 650, you’ll obviously have some trouble getting credit. Here is how you can improve it.
Pay all your bills on time. Paying bills on time is always important, every time. And now that you want to apply for a mortgage, it’s crucial that you avoid any new late payments.
Avoid new credit as much as possible. The last thing you want when planning to apply for a mortgage is to add debt to your report. This is because it often leads to a lower score.
Pay down credit card balances. Doing this will instantly boost your credit score.
2. Get pre-approved before house hunting.
Prior to beginning house hunting, get your mortgage pre-approved first. And, even before you get pre-approved, you’ll need to talk to a lender.
Your lender will check your credit and validate your assets and income with your paycheck statements, bank statements, tax returns and W2’s.
3. See whether you can qualify for an FHA loan.
FHA loans are mortgages insured by the federal government. They are offered to low-to-moderate income individuals with credit scores as low as 500. They are a great option for first-time buyers or people without sterling credit or much money.
However, FHA loans have a maximum loan limit that varies depending on the average cost of housing in a given region.
Advantages of FHA loans:
Adjustable and fixed-rate loans available
Higher debt-to-income ratios accepted
Low interest rates
Down payment assistance programs available
Down payment can be a gift
Low 3.5% down payment
580 minimum credit score
4. Understand your down payment options.
A down payment is the amount of cash you put toward the sale price of a home. It reduces the amount of money you’ll have to borrow.
A 30-year fixed rate mortgage, for example, usually requires at least a 5 percent down payment. So, for a $200,000 home, you’ll need to pay a down payment of at least $10,000 to secure the loan.
As a first time buyer, however, you may not have this kind of money. And, this may be the reason why FHA loans tend to be popular with first time buyers as they require just 3.5 percent down payment.
So, instead of paying $10,000 to secure the loan for a $200,000 home, you’ll only need $7,000.
The following are requirements for down payment for each home loan type.
Conventional – 97-3%
Conventional Loans – 5% - 20%
203K Loans – 3.5%
USDA Loans – No down payment
VA loans – No down payment
FHA Loans – 3.5% with a 580 credit score
5. Hire a qualified realtor.
You can’t save money by not hiring a real estate agent. Sadly, this is a mistake that many first-time buyers often make. Agent fees are usually covered by the property cost.
A seasoned agent will not only assist you to navigate state and federal regulations, negotiate with sellers, and get a handle on paperwork, but they will also ensure your interests are protected.
6. Know the types of loans available for first-time homebuyers.
Besides FHA loans, first-time homebuyers have other options as well. They include:
FHA Loans – 3.5% with a 580 credit score
FHA Energy Efficient Mortgage (EEM)
Fannie and Freddie 3% Down Loan
203K Loan
USDA Loan
VA Loan
Conventional 97 Loan
Conventional Loans
7. Check for first-time homebuyer programs and grants.
There are also have a number of grants and programs available to assist first-time homebuyers with their down payments. These are offered by the Department of Housing and Urban Development (HUD).
Those offered by the HUD include the One Dollar Program and the Good Neighbor Next Door Program.
You could also check your city or county’s website for other programs as well.
With these 7 tried-and-proven tips, getting a home loan as a first time home buyer need not be a stressful and confusing process. You only need to understand the options before you and make the right decision.