Buying your first home can be a daunting experience. Here are a few questions a first time home buyer should ask to help navigate the process.
How Much of a Down Payment Will I Need?
Traditionally speaking, a down payment of 20% is beneficial when purchasing a property. This can help you avoid paying private mortgage insurance (PMI) premiums as well as reduce the cost of your monthly mortgage payments. Different loan types have different minimum down payments. A conventional loan may require as little as 3% down while FHA loans ask for at least 3.5% of the total purchase price. Some loan types even offer a 0% down payment option. However, the more you pay upfront for your home, the lower your monthly mortgage payments will be.
What Should My Credit Score Be?
To qualify for the best rates on a home loan, your credit score should be 740 or above. Take into consideration that most mortgage lenders will not differentiate between a score of 740 or 850. You can still be approved for a home loan with a credit score above 580, but the terms of your loan will be affected by your credit history.
What Other Monthly Costs/Fees Should I Be Aware Of?
There are many additional costs that come with purchasing a property. These include property taxes, homeowner’s insurance, utilities, home maintenance and closing costs. Property taxes will vary from state to state as well as within the state.
Purchasing a suitable homeowner’s insurance policy is also crucial when buying a home. Most premiums fall between $1,000 to $2,000 annually with additional costs for flood and earthquake coverage. Utility costs average just under $3,000 nationally over the course of a year, varying between climates and depending on factors such as water, lawn care, heating and cooling systems, and much more.
Home maintenance such as general upkeep is another aspect to consider. This includes any repairs, minor or major, that are required to maintain your home’s condition.
Closing costs encompass any fees that may be associated with the final sale of the property. These fees could be related to mortgage taxes, attorney fees, title insurance, and any other fees required by the state.
How Do I Know the Best Time to Buy a Home?
The best time to buy a home will depend on your own financial situation, credit score, and the wider housing market. A strong credit score helps you qualify for a low interest rate while a larger down payment reduces monthly mortgage payments. Paying attention to the rise and fall of home prices can help you to make an offer when they’re in the buyer’s favor.
What Loan Types Should I Consider?
There are a few different types of home loans available for first-time home buyers and finding the right one can save you thousands of dollars over the life of the mortgage. Consider which one may be best for you.
1. FHA loan: This is the best loan program for buyers with weaker credit.
2. VA loan: This loan requires no down payment for borrowers with a military connection.
3. USDA loan: 100% financing on rural properties. This is not exclusive to farms.
4. State first-time home buyer program: Specific assistance for first home buyers.
5. Good Neighbor Next Door: Discounts on home price for first responders and educators.
6. Dollar Homes: Foreclosed homes for sale by the government.