Home Insurance What you need to know

What you need to know

by Joshua Garcia

Buying a home in a market with rising prices and limited inventory may seem daunting, but as a first-time home buyer, you actually have some exclusive benefits that can work to your advantage. From low down payments to credit-score flexibility, grants, and home-purchase assistance programs, there are several perks available to help you achieve your homeownership goals.

To qualify as a first-time home buyer, you typically need to meet one of three criteria: you’ve never purchased a single-family home before, you haven’t owned a home in the last three years, or you’re a displaced homemaker or single parent who has never owned a home (other than joint ownership with a spouse) in the last three years. Additionally, you’ll usually need to have a steady household income and manageable debt load to be eligible for a first-time home buyer loan.

One of the biggest breaks for first-time home buyers is the ability to make a lower down payment and have more flexibility with credit scores. While the historical goal has been a 20% down payment to avoid private mortgage insurance, first-time home buyers can make a minimum down payment of 3% (some lenders even allow as low as 1%). If you have a lower credit score, you can still qualify for an FHA loan with a FICO credit score as low as 500 with 10% down, or a conventional loan with a score as low as 620. Taking advantage of home buyer education courses can also help you navigate the home purchase process.

Another significant benefit of being a first-time home buyer is the availability of down payment assistance programs and grants from government and nonprofit organizations. These programs cater to various groups, including teachers, first responders, Native Americans, public housing residents, and low- to middle-income households. Doing some research and reaching out to resources like the Department of Housing and Urban Development (HUD) can help you find assistance programs you may be eligible for. Some employers also offer homeownership assistance for their employees, so it’s worth checking if your company provides any such programs.

Determining how much house you can afford is a crucial step in the home buying process. To get a rough idea, multiply your gross pay (income before deductions) by 28%. This amount is typically what lenders consider when evaluating your ability to handle housing expenses, including your monthly mortgage payment, homeowners’ insurance, and taxes. To ensure you’re within a comfortable range, multiply your monthly gross pay by 36%, which accounts for all of your monthly debt, such as vehicle and student loans, credit card payments, and housing expenses. It’s essential to factor in your credit score, income, and existing debts when determining an affordable mortgage amount.

When it comes to finding a lender, take your time and explore multiple options. Ask family and friends for recommendations, check with your current bank or financial provider, consider credit unions and local savings banks, explore online-only lenders, and seek referrals from your real estate agent. Getting pre-approved by multiple lenders can give you the opportunity to compare interest rates, fees, and terms, allowing you to choose the best offer.

Knowing your credit score is also vital in understanding your home buying power. The minimum FICO credit score required to qualify for a home loan varies depending on the loan program. For example, you’ll need a score of at least 500 to qualify for an FHA-backed loan with 10% down, while conventional loans typically require a score of at least 620. A score of 700 or higher can qualify you for a jumbo mortgage, and a score of 760 and higher generally gets you the most favorable interest rates. It’s crucial to work with a lender who can assess your creditworthiness and guide you through the mortgage programs you qualify for.

While there isn’t currently a first-time home buyer tax credit available in 2023, it’s worth keeping an eye on any developments or proposals that may arise in the future.

Once you’ve connected with lenders and have a good understanding of your down payment requirement and expected loan terms, it’s time to start shopping for a home. Working with a reliable buyer’s real estate agent can help you find the right home at a fair price. Once you’ve identified a property, you’ll go through the loan process, including underwriting, inspections, appraisal, final approval, and closing.

Being a first-time home buyer has its advantages, allowing you to access exclusive benefits that can make homeownership more achievable. By taking advantage of low down payments, credit-score flexibility, assistance programs, and grants, you can navigate the home buying process with confidence and secure your dream home.

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