Buying a home for the first time is quite an amazing experience. However, there are things that need to be done before you make a deal. The process can be confusing and stressful unless you understand what to do. If you are looking for a single detached house for your family then check Ballymore Homes.
In this guide, we will help first-timers to buy a house.
It is not possible to know everything about purchasing a house, especially for first-timers. It does not mean that you should not do your research. Planning will help you find the right place. You should try to know as much as you can to make the process easier. Here are some tips to consider:
Contact two or three lenders: Most first-timers make the error of just going with what they find first. It is not a good idea as you will end up getting high rates. We will recommend you to talk with at least three lenders and go with the lowest rate.
Types of loans: As a newbie, you might not know about the various types of loans. You should first consider which type of loan is best suited for you.
Understand your budget: There are other things to consider such as mortgage payment, taxes, interest, insurance, and principal. You should keep your budget and mortgage rate in mind. Doing your research will help you shop for a mortgage that best suits your needs.
What Is Mortgage?
Not every person buys a house with cash. About 90% of people have to borrow money in order to buy a home. Only 10% of people able to buy their homes without any loan. A mortgage is a money that you borrow to buy a home.
What makes it different?
- Mortgage offers a low interest rate of about 3%.
- The repayment periods for it are longer.
- In the case of a mortgage, the loan payment is fixed which means you have to pay a fixed monthly payment. You can also opt-in for loans with adjustable-rate.
- You can secure a mortgage by the worth of your house. If you are not able to make a payment, then the lender will take back your house.
In some cases, you may have not to need to pay any money for the purchase. The mortgage company will pay the full amount of the house price. What you will pay from your pocket is called the down payment.
Do You Need to Pay Down Payment from Your Pocket?
In most of the case, it is required from you to pay the down payment. In general, it is the amount of money you are going to pay from your own pocket. However, there are some turnarounds to not pay that money. You can search for a down payment assistance program in your area. The local government-run such programs to help first-time buyers to make the down payment.
You can also use gift money for the down payment. However, you need to provide proof that money is coming from an acceptable source. To prove that, from the giver, you will need a gift letter. This letter should indicate your relationship with the person and the amount. It also needs to contain an affirmation that the giver does not need to repay.
Are There Any Grants for First-Time Buyers?
First-time homebuyers can get a grant from the local government. These specific grants are designed to help them pay for the down payment. Hence, it also refers to down payment assistance programs. This will cover the down payment and closing costs.
As you are a first-time homebuyer, it will be a great opportunity for you to save some money. A study shows that people who use this grant can save about $600 on closing, and $11,000 of their loans.
It comes in two forms:
- DPA: You will be given the money that you don’t need to pay back.
- Low-Interest Loan: The money you will lend for the down payment for your home at minimal interest.
The size of the grant varies from one place to another. Furthermore, there are certain requirements that you need to meet to be eligible for the grant.
Why You Need a 20% Down Payment?
In reality, the down payment for a house is less than 20%. But still, people think that 20% is the minimum. Well, there is a reason behind it. If you pay 20 % for the house as a down payment then you do not need mortgage insurance. It is an extra charge for your mortgage which can cost you hundreds of dollars per month.
Most people refrain from paying for the insurance and hence aim for a 20% down payment.
Type of Home Buyer Loans Available?
As we mentioned above, there are a dozen types of loans. However, home buyers, including the first-timers usually go with the following loan programs.
- Conventional Loan
- The U.S. Department of Agriculture Loan
- The Department of Veterans Affairs Loan
People use one of these because of the low-interest rates, friendly terms, and accessibility. Each one of them has its own benefits. You have to do your research to find out which one of them is best for you.
Credit Score Requirements
Credit score matters a lot when buying a new house for your family. It is what decides what loan options you have and what is your home budget.
First-time buyers usually do not have a good credit score. Classification of credit scores is as follows:
- <620 is poor
- 620 to 679 is fair
- 680 to 719 is good
- 720+ is excellent
People with excellent credit scores have more loan options at low-interest rates. People with good and fair have also some great options.
Keep in mind that a good credit score will help you get lower interest rates, lower monthly payments, and a bigger home buying budget.