Your home is likely one of the most expensive purchases you'll ever make. The median sale price of a home in the U.S. in March 2019 was $317,4001. When you're spending that much money, you don't want to rush into things or make the "wrong" choice.
Luckily for you and other first time buyers, there are numerous first time homeowners loan programs out there that help to educate and inform people who are purchasing a home for the first time ever. As you get ready to buy your home, here's a guide to everything you need to know.
Down Payment Details
Many home loans require a down payment, and the amount of the down payment can seem intimidating to plenty of first time buyers. The down payment is the portion of the price of the home that you pay upfront. In many cases, a down payment of 20% is considered ideal. Putting 20% of the price of the home down means that you don't have to pay private mortgage insurance. It can also mean that you get a lower interest rate on your mortgage from the lender.
For plenty of people, saving up 20% of the value of a home can seem challenging, if not impossible. Fortunately, a 20% down payment isn't a requirement for most mortgages. Depending on the type of mortgage you qualify for, you might be able to make a down payment of just 3.5% or even 3%. Some mortgage programs don't require a down payment at all.
How can you decide how much to put down or how much to save for your down payment? It helps to understand what loan programs are out there and whether you qualify for any that accept a lower down payment. Some programs are meant just for first-time buyers and don't require a down payment at all. These programs also offer discounts on closing costs, to make buying a home even more affordable.
What Can You Afford?
Along with deciding how much to save up for your down payment on a home, it's a good idea to think about how big of a mortgage payment you can afford each month. One common rule states that your total housing expenses should be less than 28% of your monthly income2. If you have other debt, your total debt, including housing, shouldn't be more than 36% of your income.
First Time Homeowners Loan Options
Once you have a ball-park figure of what you can afford each month, it's time to examine the types of mortgages available for first time buyers.
Mortgages generally fall into two categories. There are conventional mortgages and government-insured mortgages. Conventional mortgages typically require higher down payment amounts and a higher credit score. A government-insured mortgage might not require any down payment and is generally available to people with less-than-excellent credit.
Some of the mortgage options available for first-time buyers include:
Programs Available for First Time Home Buyers
In addition to a variety of mortgage options, there are also programs designed specifically to help first time homebuyers make their first home purchase. These programs can range from seminars and workshops designed to illuminate the home-buying process for first-timers to mortgage programs that aim to make buying a home more affordable for first-timers. Often, first time homebuyer mortgage programs require you to complete workshops or training modules before you can apply for the mortgage.
Quick Tips for First Time Homebuyers
As you get ready to buy a home, the following tips can help to simplify and streamline the process for you.
Buying your first home can seem intimidating or like it's out of your reach, but it doesn't have to be. There are plenty of resources and aids available to you to make homeownership attainable. Your credit union can be a great first stop when you're getting ready to buy a home, whether you want more information on mortgages or are looking to learn more about programs designed specifically for first time buyers.