subject: Can First Time Buyers Succeed In Today's Market? [print this page] 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.
Before taking this major step there are a few things you need to know. 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. Talk to a licensed and experienced Realtor in your area, or find an online mortgage calculator. It would be a frustrating waste of time to look at houses that you can't afford, and it would be less than optimal to look at homes that are smaller than what you need. If you know what your price range is, you'll start off on the right foot. 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. Also the more you have available as a down payment will reduce your loan amount which in turn will reduce your monthly payment.
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. Your Realtor will know what's available and what your circumstances make you eligible for. Veterans may be able to qualify for a no down payment loan through the VA. Even if you're not a veteran, you may be able to get a low down payment loan through FHA. These loans are very popular, especially for people buying starter homes.
You can buy a home with only 3.5% down if you can qualify for an FHA loan. That's a very low down payment. Home buyers in high cost areas used to be unable to get FHA loans because of their relatively low maximum balances. Fortunately the limits have been increased to more than $700,000 in some high cost areas. 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. 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.
Borrowers can usually cancel PMI once they reach a certain level of equity in their home. Again this depends on your loan program but is usually between 20 and 22 percent. Keep in mind lenders are required by law to cancel PMI when the equity you have reaches 22% however you can contact the lender and request the PMI be cancelled after you hit 20%.
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.
The bottom line? 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.
