Some may say that being able to buy and then afford a home in this market is an unreasonable goal. Don’t just take their word for it, though. Everyone’s situation is different. This might actually be an ideal time to buy your first home, if you meet certain conditions.
But what do you need to know before taking the plunge? Even in the current real estate market, taking a few simple steps can put you on the path to successfully buying and keeping your first home.
First word of advice is to find out how much you can afford. Use an online mortgage calculator or speak with a licensed Real Estate Professional. 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.
You also need to know what your credit score is. The interest rate on your loan will be determined by your credit score and how much you have to put down on a home. 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. Look for a special loan that allows you to buy with little or no cash down. However in today’s market finding a no down payment mortgage can be difficult. Your Realtor will know what’s available and what your circumstances make you eligible for. Veterans may be able to qualify for a no down payment loan through the VA. Even if you’re not a veteran, you may be able to get a low down payment loan through FHA. These loans are very popular, especially for people buying starter homes.
You can buy a home with only 3.5% down if you can qualify for an FHA loan. That’s a very low down payment. Home buyers in high cost areas used to be unable to get FHA loans because of their relatively low maximum balances. Recent increases to more than $700,000 in some geographic areas have made them accessible to almost all first time home buyers. 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. Keep in mind though that borrowers who put down less than 20% are usually required to pay PMI (Private Mortgage Insurance) again depending on the loan program so keep in mind your particular circumstances always play a part in this process.
After a few years of making mortgage payments, your equity will have grown. Once you have 20% to 22% equity in your home, you should be able to cancel your private mortgage insurance and save that money each month. Think of it as a cost of getting your foot in the door of homeownership. It’s usually easier than saving up a 20% down payment.
Even if you could come up with a 20% down payment, you may choose to apply for a loan with a lower down payment. Then you could use the extra money for other things, like debt consolidation, your child’s college education, or future mortgage payments.
What does all of this mean to you? 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 San Diego new homes. The builder will help you through the process of obtaining a home loan.
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