If you are financing a house as a first time home buyer, you actually have more options that you think. Your lack of credit does not have to stunt you. Here are nine tips that you can literally take to the bank when you are ready to jump into the real estate market.
1. Am I taking advantage of all of my potential military subsidies?
If you or your spouse is a military veteran, then you may be eligible for a first time home buyer program administrated by the Federal Housing Administration (FHA)Â , the Navy Federal Credit Union, or the United States Department of Veterans Affairs (VA). All of these institutions have options in place especially for you as long as you have served in some branch of the military. Active duty military, reserve military, members of the Department of Defense, and National Guard servicemen and woman may also be eligible for many loan programs including zero down payment loans and loans that waive other insurance fees.
2. Can I get financial help based on the location of my home?
Depending on the location of your home, you may be eligible for government subsidies from the United States Department of Agriculture (USDA). The USDA has several programs available for low to middle income households, households that prefer rural areas, and first time home buyers who fit the other criteria of one of the programs. The USDA offers no down payment mortgage programs that are similar to the government programs that are mentioned above.
3. What kind of house should I be looking for?
In order to find the best house, you should endeavor to limit your options as much as possible, not expand them. This may seem counterintuitive, but if you are trying to affix your needs to a certain budget and a location, you best serve yourself by drilling down into properties that fit those criteria rather than wishfully thinking about the millions of properties that the Internet gives you access to vet. This actually saves you money in the form of your time that you can now use to earn more money for your down payment.
4. Should I look at my first house as an investment?
Although you definitely do not want to lose money, you should look at your first house as a residential location more than an investment. Give yourself the best chance to make money by surrounding yourself with a good team, but do not kill yourself if you find out that you overpaid by a few thousand dollars. This thought process will actually help you pick properties that are more conducive to your budget.
5. How do I save for the down payment?
You may not be eligible for the no down payment programs that are mentioned above. If you are not, then you will need to save money for the down payment. Start by going over your monthly budget line item by line item. Reduce your costs as much as you can here. Although no single line item will affect your budget by a huge amount, the aggregate will add up faster than you think.
6. Is there a certain timing that helps with financing?
There is no perfect time to stop saving for a down payment and start house hunting, but you should definitely try to outpace the 20 percent minimum that will save you money on the private mortgage insurance (PMI) payment that you pay if you have less than 20 percent. Choose your general budget, but do not seriously start hunting until you have that 20 percent in cash ready to spend.
7. Can my real estate agent help me with financing?
Your real estate agent helps you indirectly with your financing. If you pick the right agent, then you gain a leverage that you otherwise would not have over sellers and their agents.
Your financing is based on the total price of your home, so if your agent can help you to negotiate a lower total price, then you will have an easier time financing that money. The agent that you choose may also help to lower your risk profile in the eyes of your lender if the agent has a good reputation in the local area. If your risk profile is low, you get lower interest rates.
8. What financing term should I choose?
The 30 year term is not automatically the best choice for you. Consider the 15 and the 10 year terms as well. Paying the lowest amount per month, even if you are not the richest person in the world, may not be the most appropriate financial decision for you. 30 year terms cost you hundreds of thousands of dollars over the life of the loan when compared to a 10 year term. Do the math over the long term, not just the monthly budget.
9. Should I make lenders compete to get better financing?
You will not get the best rates on your interest and the lowest financing unless you make lenders compete. Do not commit yourself to any lender until you have applied for all of the government programs that you may be eligible for. After that, compare the numbers that different lenders give you. You may be able to get a better rate just because you show the paperwork from the bank down the street to another banker.
2 Point Highlight
There is no perfect time to stop saving for a down payment and start house hunting, but you should definitely try to outpace the 20 percent minimum that will save you money on the private mortgage insurance (PMI) payment that you pay if you have less than 20 percent.
You may be able to get a better rate just because you show the paperwork from the bank down the street to another banker.
