Buy Your First Home in Today’s Real Estate Market
Is it an unrealistic goal to be able to buy a home in this market and afford to make the payments, as some say? 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? 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. Talk to a licensed and experienced Realtor in your area, or find an online mortgage calculator. 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.
No and low down payments are available and require little if any cash, from the buyer. Today buyers are able to purchase a home with as little as four percent down. Compare that to the average down payment of twenty percent 20 years ago. Many factors will figure into how much you need to put down. 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.
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. 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. 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%.
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? Use the resources available and you can be opening the door on your new home, even in this market.
