Thinking about buying your first home can be both exciting and dreamy. It can fill your thoughts with paint colors, window coverings, and furniture for weeks. Although, the romantic reverie can come to a screeching halt when you start to think about all the logistics and how tos.
First-time home buying is a big decision and can easily be overwhelming, but it doesn’t have to be. With a little help and research upfront, you can approach the dream of owning your first home with confidence. As they say, “being prepared isn’t half the battle, it is the battle.”
Answering the big questions can be easier than you might think by taking a bit of time to consider all options. Here are six big questions we hear a lot and answers that will help you answer the biggest of them all, “Am I prepared?”
“Being prepared isn’t half the battle, it is the battle.”
1) What is a first-time home buyer loan?
First-time home buyers have access to additional funding options and programs through financial institutions and may qualify for federally-backed loans, tax breaks, as well as other programs to encourage home buying. Because it’s typical that first-time home buyers have lower income and may have little to no down payment these advantages are in place to help foster the American dream of owning your own home.
2) How do first-time home buyer loans work?
Each program can differ based on the state in which you live, but there are a variety of options available. Here are a few to consider:
- FHA home loans typically have a lower credit score and income requirement than other conventional loans. However, an FHA loan will likely call for a 3.5% down payment. An FHA loan is a federally-backed loan for single family and multi-family homes – meaning the government has guaranteed to pay these loans to the lender if the borrower is unable to.
- A 30-year fixed rate mortgage allows for the same rate throughout the life of the loan. This choice may be best if you’re looking to have a lower monthly payment. This payment term can be applied to a conventional, FHA, and other mortgage loans.
- 5/5 Adjustable Rate Mortgage may be a great option if you’re planning on selling within five years. With low monthly payments up front, this option allows more flexibility for your inner vagabond.
- Conventional loans are not backed by the government and usually have income and down payment requirements set in place by Fannie Mae or Freddie Mac.
- VA loans might be a good fit if you have military service and are backed by the Department of Veterans. These loans are great for veterans with low-to-moderate incomes, with little down payment, and who need to finance their closing costs.
Not sure which loan option is right for you? Let a team of experts guide you, allowing room for you to call the shots. Find a financial institution that offers a variety of options, specific to the first-time home buying process.
Unitus offers something for everyone. Let us help you in finding the right option.
3) Who qualifies for a first-time home buyer loan?
Each loan type or program has specific criteria to qualify for a first-time home buyer loan.
FHA loans require a 3.5% down payment along with a credit score of 580 or higher
Adjustable Rate Mortgage (ARM) loans typically require a higher credit score, but vary in other qualifications based upon the financial institution terms.
Conventional loans also require a minimum of 3.5% down payment, a credit score of 580 or higher, and a debt to income ratio that is below 50%.
To calculate your debt to income ratio, add up all of your debt (the things you make payments toward, i.e. car, vacation loan, credit cards, etc.). Then divide that number by your gross income (income before tax).
VA loans require a person to be in service for at least 90 continuous days or be a surviving spouse of a veteran who died or was placed on disability due to military service. Down payments aren’t usually required, but a healthy stream of income and a credit score of 580 or higher.
4) How much can I afford?
Start with a budget. Add any expenses and income you may have to calculate if you’re able to take on a loan payment. You may decide it’s a better option to buy instead of renting.
Keep in mind that the cost of renting will rise over time, but if you lock in a good mortgage, the monthly cost of living in a home you own could be well below the average cost of renting within just a few years.
Come in with an open mind. Consider where you want to live, the property tax you’ll have to pay by visiting the assessors office for your county. Is it worth it to you to stay in that neighborhood or are you open to another neighborhood close by with lower property tax?
In many cases, you may be able to afford more home if you buy in a location with lower taxes.
If you’re feeling prepared to take on a mortgage loan payment, knowing how much can afford each month will boost your confidence in making decisions. Perhaps use a Mortgage Rate calculator to estimate your monthly payment.
5) Do I have a down payment?
First-time home buying down payments don’t always need to be huge. In fact, some programs allow you to borrow with 0% down. A good rule of thumb is to save 3-20% of a down payment if you’re able. This will increase your buying power and give you a leg up should you decide to make an offer on a house. Having a down payment could differentiate you from any competition placing offers on the same house.
Saving up 20% may not be feasible and that’s ok. The benefit to having a larger down payment makes it easier for you to qualify for a loan because it’s less of a risk for the lender.
If you’re leaning toward a conventional loan, you may need to consider additional cost because of private mortgage insurance (PMI). PMI protects financial institutions if you should default on the loan. Some lenders will wrap PMI into the loan or will allow borrowers to pay separately. A way to get around PMI is to save up 20% for a down payment or qualify for a program or mortgage loan that doesn’t require PMI. Talking with a home loans expert is a great start in determining how to avoid paying PMI.
6) How can I get help with a first-time home buyer loan?
Attend a Home Buying Seminar.
Your new home may be the biggest purchase you make in your life. With so many things to consider, ease your anxiety by attending our no-cost seminar where we will guide you through the process.
Partner with a trusted realtor.
Getting on the same page with your realtor is very important when it comes to picking out your first home. Most realtors are in tune with their clients needs and wants. Make a list with your realtor to feel in sync. Dreaming of a space for a home office or an open floor plan? Put it on the list!
If you’re looking for the right realtor, our preferred network of agents through HomeAdvantage might be a good fit. We’ve partnered with CU Realty Services to bring HomeAdvantage to our members. This process will give you the tools and expertise to make the home buying journey easier. Plus, earn up to $1,500 after closing, just by using HomeAdvantage.1
Now that you’ve answered some of the big questions and put all of the pieces together, you can confidently decide if you are ready to buy your first home. If you’ve determined you are, now’s the time to start shopping!
Within time, you’ll find the right house to make a home. Like one of our Home Loan Experts, Michelle Hollenbeck, likes to say, “Go with the feeling. When you have the ‘feeling,’ you’ve got to go with your gut.”
Beth Buczynski, Kate Wood, 2019, What is a Conventional Loan, 7 December 2019 <https://www.nerdwallet.com>.
Hal M. Bundrick, 2019, First-Time Home Buyer Benefits: How to Qualify, 20 December 2019, <https://www.nerdwallet.com>.
Bankrate n.d., Todays FHA Loan Rates, accessed 21 January 2021<https://www.bankrate.com>.
Hal M. Bundrick, Barbara Marquand, VA Loan Requirements for 2021, 5 January 2021, <https://www.nerdwallet.com>.
Amy Fontinelle, First Time Home Buyer’s Guide, 20 March 2020, <https://www.investopedia.com>.
Consumer Financial Protection Bureau 2017, What is private mortgage insurance, accessed 25 January 2021, <https://www.consumerfinance.gov>.
1 Cash Rewards are awarded through the HomeAdvantage program to buyers and sellers who select and use a real estate agent in the HomeAdvantage network. Home buyers or sellers are not eligible for Cash Rewards if they use an agent outside this network. Cash Rewards amounts are dependent on the commissions paid to the HomeAdvantage network agent. Obtaining a mortgage or use of any specific lending institution is not a requirement to earn Cash Rewards. If you are obtaining a mortgage, your lender may have specific rules on how Cash Rewards can be paid out. Cash Rewards are available in most states; however, are void where prohibited by law or by the lender. Please consult with your lender for details that may affect you.