Is it an unrealistic goal to be able to buy a home in this market and afford to make the payments, as some say? If you meet certain conditions you could be able to get into your first home even in this market.
Before taking this major step there are a few things you need to know. 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. Knowing before you shop is always a great idea and helps insure you are getting the best deal possible. A Real Estate Professional will know your particular market and be able to guide you through the 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.
No and low down payments are available and require little if any cash, 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. There are special loans that require the borrower to put down little or no cash. However in today’s market finding a no down payment mortgage can be difficult. 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. Recent increases to more than $700,000 in some geographic areas have made them accessible to almost all first time home buyers. For first time home buyers this can be a perfect solution considering most first time buyers may not have saved up the 20% down payment. 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.
Putting less than 20% down also frees up that money for other purchases such as new furniture for your new home or you can save it for future payments, debt consolidation or your child’s college education.
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. Builders often help their buyers in obtaining mortgage loans.