Insiders Mortgage Guide For First Time Home Buyers - Prepared By The Schmidt Team
Updated: Dec 27, 2022
As a first-time homebuyer, there are many loan types and down payment assistance programs to help you purchase your first home.
Consult a Mortgage Professional Early
Most importantly, as a first-time homebuyer, it is in your best interest to consult a mortgage provider to gain expert advice and help choose a loan that you can afford and realistically get pre-qualified for.
It’s also crucial to know what types of loan programs you are eligible for and determine which best suits your current financial situation. If you want a stable monthly payment that does not change over the life of the loan, a fixed-rate mortgage is something to consider. If you need a lower initial monthly payment for a short period of time, you can opt for an adjustable-rate mortgage where the interest rate is periodically adjusted based on a variety of indexes.
Find Out Your Credit Scores (FICO®) In Advance
Before getting pre-qualified for a loan, it is essential to find out your FICO® or credit score. FICO is an acronym for the Fair Isaac Corporation, which developed the credit-scoring model that many lenders use to determine a homebuyer's ability to pay their mortgage on time.
Remember that whenever you apply for a mortgage, it appears on your credit report and temporarily lowers your score. If you keep re-applying to a lot of lenders over a long period of time, this lowering of your credit score could affect your ability to get approved for your mortgage. Find out your credit score as soon as possible to give you time to improve or fix any inaccuracies. In the lead up to buying your home, it’s important to make sure you pay your bills or debts on time, as generally a minimum score of 620 is required to get a home loan.
Get Pre-Qualified For A Home Loan
Why get pre-qualified before searching for properties or making an offer on one? Pre-qualification means you have voluntarily provided your documentation to a licensed loan officer, such as W2 forms, bank statements, and maybe even tax returns on top of a credit check. This allows for an in-depth review of your current credit and financial situation. It’s more desirable for sellers to consider offers from pre-qualified homebuyers since it is such a competitive market, and that you are a serious buyer for their property.
Learn What Loan Programs Are Available To You
There are many first-time homebuyer loans and programs that often get overlooked where you can get financial assistance with your mortgage. If you qualify for a government-backed loan like FHA (Federal Housing Administration), it could offer a lower down payment, or a Veteran Administration (VA) loan (for Veterans) includes 0% down payment plans available if you qualify. As a first-time homebuyer, you should know what mortgage assistance programs your state has to offer. Usually, down payment assistance programs could provides fund for your down payment and closing costs. It varies by state and program.
• Fannie Mae: These are Conventional loans with only a 3% minimum down payment of the agreed sales price. Certain county loan limit amounts apply.
• FHA Loan: This is the best loan program for homebuyers who may have a credit score less than 580 or need a lower down payment.
• VA Loan: This program provides 0% down payment options for qualified Veterans and military personnel along with no monthly mortgage insurance
• USDA Loan: United States Department of Agriculture offers 100% financing programs for rural area properties.
• State First-Time Homebuyer Programs: State-specific assistance varies by state.
• Home Renovation Loan: This program allows you to purchase a home and remodel it all with a single loan.
• Good Neighbor Next Door: Agreed-upon home listing price discounts are available for first responders and teachers.
Decide On An Affordable Down Payment Option
There are a few options in regards to your down payment percentage requirements for first-time homebuyers on top of down payment assistance programs. Most home loan down payments can be as low as 3% of the full listing price, depending on the amount being borrowed. For regular loan advances, 20% is typically put down upfront, which comes with many advantages such as not needing mortgage insurance. Mortgage lenders ideally don’t want all your income going towards your loan, so assets such as savings or retirement funds can be used as a partial down payment.
Important Loan Processing Costs To Consider
When considering how much you can afford for your down payment and monthly mortgage payments, it’s important to consider the closing costs on top of the initial moving costs and any re-modeling or maintenance work needed. Here are some typical expenses to expect during your loan closing period.
Your loan officer should be able to provide an estimate of what your closing costs are so you can take that into consideration along with the down payment amount that you are going to make.
• Escrow Fees
• Title Protection
• Fee for Appraisal
• Fee for Underwriting
• Service Fee for a Notary Public
• Fees for Recording
• Transfer Taxation
• Fees for obtaining Credit Reports
• Mortgage Origination Fees
• Transaction Charges
• The Price of a Home Inspection
• Prepaid Interest
• Real Estate Tax
• Risk Insurance
• Homeowners Association Fees
• Mortgage Insurance
First-Time Homebuyer Summary
Buying a home is a complex and detailed process that deters many people, leaving them to throw away their hard-earned cash on paying rent. With the financial terminology, closing costs, and the number of people involved in the transaction, it’s important to work with a professional mortgage provider to ensure a smooth closing on your chosen property. Please contact The Schmidt Team with any questions you may have and start your journey to becoming a homeowner.
Insiders Mortgage Guide For First Time Home Buyers Was Prepared By The Schmidt Team. [