Moving from an apartment to your first home can be challenging. Before searching for a home, consider taking the time to learn about some of the great programs available to first time home buyers which can save you the trouble of saving up for a large down payment.
Before you Home Buying: Know Your Hidden Costs
If you’re browsing for homes, know that the sales price will not be the final cost. There are additional costs associated with purchasing a property, owning, and maintaining the home which could also include,
Property Taxes
Varies from county to county
Closing Costs
Fees paid to the lender to secure your loan
Home Inspection Fees
Not required but highly suggested
Appraisal Fees
A professional who performs an unbiased estimate of a property's value. This is paid for by the borrower/buyer.
Private Mortgage Insurance Premiums
Lowers the risk a lender faces when offering you a loan.
Programs for First Time Buyers
There are great programs available to first time buyers, even at lower incomes and credit scores that require a smaller down payment. If you want to learn even more about these programs, begin your mortgage application and schedule an appointment with our mortgage team today:
FHA Loans
FHA Loans offer a lower down payment and lower credit score than conventional loans. With a minimum down-payment of 3.5% and a credit score as low as 580, FHA Loans are perfect for first time home buyers with limited savings or who do not meet standards of conventional mortgages.
FHA Loans are not as stringent as they have been made to appear. The main requirement when using an FHA loan to purchase a property is that it must meet specific safety, security, and soundness requirements as designated by the Federal Housing Authority.
Some examples of homes that can be purchased using an FHA Loan include
- Single-family houses.
- Two- to four-unit multifamily homes
- Approved Condominium units.
- Certain manufactured homes (attached to a permanent foundation).
A few notes about FHA:
- FHA Loans cannot be used solely for investment properties. Any property purchased by the borrow must serve as the primary residence for more than half of the year.
- You’ll want a debt to income ratio between 43% - 50% to get an FHA loan. This means the gross amount of money you have coming in vs what is going out. Your back ratio includes your monthly mortgage payment (PITI), unsecured debt, installment debt and any other monthly debt. . A lower debt to income ratio shows a financial institution you may be more capable of managing the cost of your new loan.
Mortgage insurance is required for all FHA Loans, , and must remain for the life of the loan
Mortgage insurance lowers the risk a lender faces when offering you a loan. Borrowers making a down payment of less than 20% or get an FHA loan must have mortgage insurance.
Home Ready Mortgages
Home Ready Mortgages is a mortgage program allowing down payments as low as 3% and for those with a credit score of at least 620. This is great for buyers who would otherwise qualify for a conventional loan, but lack resources necessary for a large down payment.
Important Notes with Home Ready:
You will need private mortgage insurance if you put less than 20% down on your home and must maintain it until your home’s loan-to-value reaches 78%. At 80% LTV, your mortgage insurance will automatically be removed.
Loan to Value: Ratio of the loan amount to the value of an asset purchased. ie. If you borrow 230,000 to purchase a home worth $250,000, your LTV would be 92%
Conventional Fixed and Adjustable Rate Mortgages
Other Mortgage programs offered are conventional or adjustable-rate mortgages.
A conventional fixed mortgage rate means your payment will be the same for the entire term of your mortgage. An adjustable rate mortgage (or ARM) offers you a lower rate than a fixed but only for a set period of time. After that predetermined interval, your rate will be reset based on particular indexes combined with an additional amount called an ARM margin (defined by your loan and lender). ARMs are great if you are not planning on being in the home for a long period of time. These offer a lower start rate, making it easier to qualify. Then by the time the loan resets, if needed or desired, you will be in a better position to refinance.
Get Prequalified before you browse
Pre-qualification for a mortgage is the first step you should take if you are serious about purchasing a home. This process involves your lender reviewing your financial information, such as credit, income, debts, and assets to determine the loan program and amount you may be eligible.
Pre-qualification is your way to get an idea of how much you can afford before starting your search for a home. It can help you determine if you need to improve your credit score or pay off debt before applying for a mortgage.
A pre-qualification does involve a hard credit check. If you want to know your credit score before prequalification, visit Experian for a free credit check and fico score.
If you need help improving your credit and paying down debt, schedule a free, one on one counseling session with one of our certified credit union financial counselors.
About Home Refinancing
As we saw in 2020, mortgage rates reached a near 20-year low. Don’t stay stuck with your old rate. When rates drop by 1% or more, consider refinancing your mortgage. The closing costs you pay upfront can’t compare to the hundreds or thousands you’ll save if you refinance to a lower rate and payment.
Ready to begin your journey?
Begin your application and then schedule your no-obligation meeting with our team to find the program right for you!