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First Time Buyer In Today’s Market
August 27, 2010 by man
Filed under First Time Home Buyer Michigan
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? A few simple steps can make sure you are on the right track to buying your first home, even in this market.
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. Knowing before you shop is always a great idea and helps insure you are getting the best deal possible. 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. Your credit score along with your available down payment will play a role in determining what interest rate your will have for your loan. 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. The average down payment 20 years ago was about 20% but today some people are able to put down as little as four percent. Here’s where your particular circumstances come into play. The down payment required depends on many factors. Look for a special loan that allows you to buy with little or no cash down. No down payment loans can be challenging to find in today’s market. Again your circumstances will determine what you qualify for. If you are a veteran you can probably qualify for a VA Loan but low down payments in the form of FHA loans are also available.
The FHA Loan is a low down payment mortgage that requires only a 3.5% down payment. FHA loans used have fairly low maximum amounts, putting them out of reach of buyers in expensive metropolitan areas. Fortunately the limits have been increased to more than $700,000 in some high cost areas. 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. Mortgage insurance is often required if the borrower puts less than 20% down, depending on the loan program. Make sure to consider the cost of this mortgage insurance in your monthly payment.
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? There are resources available, especially through the government, to help first time buyers get into a home. Take advantage now while the opportunities are so good and home prices are low.
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.
