Buying a home can be a difficult and intimidating process. This is especially true if it’s the buyer’s first time as it can be all the more intimidating. Buyers can count on a staggering amount of new terms, fees, and regulations. Thankfully, now more than ever, there is a wealth of information and programs available to make the process a little easier.
For many, buying a home is the largest investment they’ll ever make. However, few can afford to spend cash for the entire purchase and must rely on securing a mortgage. Even coming up with the down payment can be difficult.
Whether starting a family or a new career, having a clear understanding of how mortgages work – and what is available to first-time home buyers – can help ensure financial stability.
Here are a few things that each new home buyer needs to be familiar with when purchasing a home.
Simply put, a mortgage rate is the amount of interest a buyer will pay over the life of the loan. It’s expressed as an annual percentage rate (APR) and depends largely on market conditions that can change regularly.
These conditions can include the borrower’s credit, as well as the size of the down payment. Depending on the loan, the APR can be fixed for the life of the loan or adjustable and subject to change. Buyers can and should shop to compare offers from multiple lenders in order to get the best rates and save more money.
It’s very important for first-time buyers to understand exactly how a loan is repaid. One idea that can catch new buyers off guard is amortization. This refers to how the principal is paid back over time. Initially, most of the mortgage payment will go towards interest. As the loan nears completion, most of the payment will then go towards principal.
There are multiple government programs designed for first-time home buyers. The most common is FHA, where a certain portion of the loan is backed by the Federal Housing Administration. Borrowers can qualify for an FHA loan with as little as 3.5% down.
Another program is through the U.S. Department of Veterans Affairs or VA loans. These are designed with active duty service members, veterans, or surviving spouses in mind.
The Department of Housing and Urban Services (HUD), offers the Good Neighbor Next Door program. This program is designed for certain locations and professions, such as law enforcement officers, Firefighters, and teachers.
Buyers must have a grasp on their overall financial situation.
Low credit scores or no credit scores can be a red flag for a lender, as there is no history of financial accountability. Similarly, no housing history can potentially turn away some lenders or negatively alter rates.
The buyer must be able to prove a positive job history. Lenders like a borrower who can prove a positive job experience without a gap in their work history, or constant changes.
Finding a good mortgage broker is a good step in helping to identify any potential issues that would stand in the way of securing the best loan possible.
Buying that first home can be a challenge. But it can also provide an enormous sense of accomplishment. With so many people chasing the dream of home ownership, serious buyers should take the necessary steps to prepare for and thoroughly understand all that’s involved. Having a plan can give the buyer the best chance for the home they want, with the loan that is right for them.