What do I need to get Mortgage Home Loan?
Yes! There are mortgages for first time home buyers.
First time homebuyer loans allow buyers to get into a house more easily. However, just because you are a first time home buyer does not mean you should use a first time home buyer loan. These programs have restrictions and strings attached. While they are a perfect fit for some, these homes loans are the wrong choice for others.
What is a First Time Home Buyer Loan?
A person’s first home purchase is a big deal. It takes time, energy, and money. To help with the money hurdle, some people use first time home buyer loans. These programs vary depending on where they’re offered, but the general idea is this: first time home buyer loans give financial assistance to qualified borrowers. They may do this in the following ways:
- Allow for a very low (or no) down payment
- Subsidize interest costs (they pay all or part of it)
- Offer grants
- Forgive loans
- Limit fees that lenders are allowed to charge
- Defer payments
Note that first time home buyer loans available to you might offer any or none of the benefits listed above.
Who Gets First Time Home Buyer Loans?
As you might imagine, individuals who have never owned a home are good candidates. In addition, some programs offer first time home buyer loans to people who have not found a home within the last three years. Again, check to see what’s available to you
You may have to meet certain income restrictions to qualify for a subsidized first time home buyer loan. In general, these programs try to limit benefits to people with low and moderate income levels. If you earn too much, you won’t qualify for the program.
First Time Home Buyer Loan Restrictions
Most programs put a dollar limit on the property you’re buying. You probably can’t use a first time home buyer loan to buy the more expensive properties in your area. Instead, you’ll be limited to properties on the lower end of the spectrum. Again, the idea is to benefit people who have the most need.
You also have to live in the home as your primary residence. If you're going to rent the place out, don’t use the first time home buyer loan. Finally, the home you buy most likely has to meet some physical requirements. It must be in good condition and free from any safety hazards (such as lead-based paint, and good roof, for example).
First Time Home Buyer Loan Pitfalls
For some first time home buyers, these programs are perfect. They open the door to home ownership where a family would not have been able to buy a home. Communities also benefit from first time home buyer loans – homeowners take care of their property, get involved, and contribute to the economy. Nevertheless, first time home buyer loans can be the wrong choice in some cases.
With a subsidized first time home buyer loan, you face some challenges:
- Lower value home may not be the home you want
- You might lose some of the benefits of the program if you sell your home too soon
- You may have to pay recapture tax for some of the benefits you received
- You may be limited to a short list of loan types (only 30 year fixed rate mortgages for example)
- You may have to share increased home values with the program
Given these restrictions, you may do best to avoid subsidized first time home buyer loans. With a FICO credit score above 720, you probably won’t see an advantage with the subsidized first time home buyer loan. Once you get below 680, the subsidized program will start to look better. These days, you can get traditional mortgages with very little down.
The best thing to do is to explore all your options. Take a look at what your traditional mortgage lender is offering, and compare it to the subsidized first time home buyer loans. Once you see how the numbers compare, consider the cost of flexibility.
First-time homebuyer programs
If you’re a first-time homebuyer struggling to come up with enough to make a down payment on a home, you should be aware of the following:
FHA loans
FHA loans are loans are obtained through the Federal Housing Administration, a government arm that helps homebuyers by providing mortgage insurance to cover lenders and enable them to provide loans that require a smaller down payment. FHA loans require only around 3 percent down and this smaller amount makes it easier for first-time homebuyers to save enough for a home. To qualify for an FHA loan, you need a good credit history and sufficient income that your monthly housing costs won’t represent more than 29 percent of your gross monthly income.
Conventional loan products
Many lenders offer conventional loan products specifically geared to first-time homebuyers. Some of these products require only a low down payment instead of the traditional 20 percent down, which can be daunting for a first-time homebuyer. Another available option is a second trust or “piggyback loan.” This is a second loan that closes at the same time as your first mortgage. The idea is to combine this loan with your down payment in order to reach the 20 percent needed for a conventional mortgage.
Private mortgage insurance
As a first-time homebuyer, be sure that you’re aware of Private Mortgage Insurance (PMI). You may require this insurance if you’re applying for a low down payment mortgage to protect the lender in case you default on your loan. It is usually required on mortgages with a down payment of less than 20 percent and costs about one-half of one percent of the mortgage amount per year, or $500 for a $100,000 loan. The good news is that once you’ve paid down your mortgage to the point where you achieve 20 percent equity in your home, most lenders will allow you to cancel the insurance.
Check with lenders to see what kinds of first-time homebuyer programs they have to offer. They’ll find one that best suits your needs and brief you on the necessary qualifications. Owning a home can be easier than you think!
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