Finding Your Dream Home is the Fun Part.
Getting the Down Payment, qualifying for the loan, and selecting the appropriate loan program are the biggest challenge.
What makes sense for you will be best determined by working with a lender who can recommend viable options based on your personal circumstances.
The lender will determine what you qualify for and what is best for you. The recommendation will be based on your credit profile, debt to income ratios, FICO scores and how much you are willing to invest in down payment and closing costs.
I always recommend to first time homebuyers and all my buyers to consult with a highly reputable mortgage professional to determine what programs and down payment is best for them.
As an experienced realtor professional, I have a strong financial background and a solid understanding of current loan programs and products.
I have listed below the predominant loan programs and down payment requirements used by most buyers in the market place.
FHA: 3.5% down payment
Conventional: 5%, 10%, & 20% down payment
VA: 0% (must be a veteran) down payment
The most popular loan for first time homebuyers is the FHA loan. The reason being it has the lowest down payment (3.5%) and the easiest credit qualification (580+ FICO score) and very low closing costs.
One key factor that buyers must fully comprehend is PMI (mortgage insurance) which protects lenders should the buyer default. PMI is required on loans of more than 80% of purchase price. PMI premiums can be quite costly and typically are cancelled by law when the balance of the loan reaches 78%. At current interest rates it could take five years to have the mortgage interest monthly fees be removed.
Conventional loans without mortgage insurance require a minimum 620 FICO score and a down payment of 20% of purchase price. The term of these loans typically range from fifteen to thirty years at a fixed rate.
VA loans are for veterans only and require $0 down. The properties purchased must qualify as the VA has much more stringent requirements regarding the condition of the property.
In summary, meet with a reputable mortgage professional to learn and understand the programs you qualify for. Always ask for a Closing Costs Estimate to itemize all costs and fees.
When you select your program, it is now time to begin the home selection process. Sellers will ask for pre-approval letters or proof of funds to be submitted with all offers.
They will evaluate the strength of your offer not just based on price but also relative to credit worthiness.
I wish you all the best in the exciting and challenging home buying process.
Happy House Hunting!!!