When most first-timers anticipate owning a new home, they often get anxious. That is because the process of acquiring a home can be challenging and there are several requirements or tasks to complete. Most often, newbies make expensive mistakes that lead to rejected loan applications, or they get loans that are financially draining over time.
This article will provide tips that will make it easy for first-time homebuyers to acquire their dream home.
Who is a First-Time Homebuyer?
The United States Department of Housing and Urban Development (HUD) requires a first-time homebuyer to meet the following criteria:
- Someone who has not owned a principal residence for three years.
- Someone who previously owned a principal residence that was not a permanent structure according to the applicable regulations.
- Someone who once owned a house that was not compliant with the local, state, or model building codes and cannot become compliant with any amount less than the cost of constructing a permanent residence.
- For married couples – if you previously owned a property, but your spouse did not, both of you can purchase a home together as first-time homebuyers.
- A displaced homemaker who once owned a house with a spouse.
- A single parent who previously owned a home before getting divorced.
Benefits for First-Time Homebuyers
First-time homebuyers enjoy certain benefits. Often, as North County Property Group explains, they have access to programs that offer them lower interest rates, which makes it convenient to pay the monthly mortgage.
Also, they have a wide range of grants, loan programs, and several subsidies that reduce the down payment. The down payment for first-time homebuyers can be as low as 3 to 5% or even no down payment in some cases. Meanwhile, the standard down payment is 20%.
Things to Consider Before Getting a Home Loan
- Steady income. You should have a stable income that will provide you with money for the monthly loan payment, home maintenance, and your living expenses (food, utility, clothing, car, etc.).
- Credit. Your credit score affects the lender’s decision concerning your loan application. Lenders see borrowers with a credit score of less than 580 (FICO score) as high risk. Credit scores also determine if your down payment will be 3% or 10%. Also, the maximum debt to income ratio is 43%.
- Savings. First-time homebuyers should have some savings, which they will use for their down payment. It is also a smart move to have an emergency savings account with 3 to 6 months of living expenses.
Available Financing Options for First-Time Homebuyers
First-time homebuyers have various financing options. These include:
Federal First-Time Homebuyers Program
Government-backed loans – these programs provide housing grants and low-interest loans for first-time homebuyers. The three government-backed loans are:
- FHA loans – this program comprises of private lenders who are insured by the federal housing administration to help people with small savings or low credit scores.
- USDA loans – for rural dwellers, the United States Department of Agriculture provides up to 100% financing for house buyers. The buyers must have a credit score of at least 640 and be within the low to moderate-income group.
- VA loans – the United States Department of Veterans Affairs (VA) also provides low-interest loans for members. This loan is easier to get, and it does not require a down payment.
Good Neighbor Next Door – The department of Housing and Urban Development (HUD) sponsors this program for law enforcement officers, firefighters, pre-k-12 teachers, and emergency medical technicians. They offer as high as 50% off some HUD properties.
HomePath Ready Buyer Program – This program is for first-time homebuyers who want to reside full time in the home that they purchase. Fannie Mae sponsors this program, and the down payment is as low as 3%.
State and Local First-Time Homebuyer Program
Most governments at the local and state levels also offer individual programs to assist first-time home buyers.
Charitable or Non-Profit First-Time Homebuyer Program
There are several charity organizations and non-profit organizations that give financial aid to first-time homebuyers. Often, this depends on the income of the buyer. Popular organizations that engage in this program are Habitat for Humanity and Neighbourhood Assistance Corporation of America (NACA).
In a nutshell: How to Get a Home Loan – Guide for First-Time Home Buyers
The process of buying a new home can be challenging for first-time buyers because there are several requirements they have to meet. Sometimes, first-time buyers make expensive mistakes that lead to rejected loan applications, or they get loans that are financially draining over time.
Before getting a loan, you should consider your income, savings, and credit score. First-time homebuyers enjoy numerous benefits, but there are some criteria to meet.
The major categories of financing options available for first-time homebuyers are:
- Federal first-time homebuyers program
- State and local first-time homebuyer program
- Charitable and non-profit organizations.