What Should a First Time Home Buyer Know?
Things to Know When You are a First Time Home Buyer
The first thing to consider is the ‘Big 3”. The Big 3 is Credit, Employment and a Down Payment or Equit. In order to buy a house, a person needs to have a good credit score (what is a good credit score? We will talk about this in a couple seconds), employment and the down payment or equity in a current property that would be used as a down payment.
Most home buyers believe in the myth that in order to buy a house you need 20% as a down payment. This could not be further from the truth! The minimum down payment for a Fannie Mae or Freddie Mac loan is 3%. FHA loans have minimums of 3.5% while VA loans (Loans for active or past military) are able to put 0% down. These programs are used for Single Family homes as well as 2 or 3 family properties that are going to be owner occupied.
Know your credit score. Don’t be afraid! A great tip is to go to Experian.com. Experian is one of the three credit agencies that will give you a free credit score once per year. Your mortgage banker can also pull your credit score. It’s important to find out the credit score in order to be able to evaluate where you are and areas for possible improvement. If the credit score comes in a lower, then talk with your mortgage banker about creating a game plan that will help increase it.
Keep in mind that a Mortgage Credit Inquiry will not hurt your credit score. Now, if you were to make multiple mortgage credit inquiries then that would begin to affect your score. The credit agencies know what type of inquiry is being made and looks at a mortgage inquiry as favorable debt. A mortgage is considered secured debt vs. a credit card which is unsecured debt.
Know your Budget / Closing Costs
Many are focused on their down payment, but it is important to know that when you buy a house that there are other additional costs as well. Closing costs are in addition to the down payment (Click Here to find out more about how much it costs to buy a house). Many times, we will use some of what we consider our down payment for these closing costs. Or it is important to remember that we are able to receive “gifts” to help go towards the down payment and closing costs as well.
There is No Money Fairy giving Money to 1st Time Home Buyers
A common misconception is that 1st Time Home Buyers get grants or gifts to help go towards their down payment. While this can be true, it is not through a mortgage broker and it isn’t for everyone in all locations. These grants are generally found in areas that communities are trying to incentivize to get homeowners (instead of investors) to buy in which is thought to help stabilize and improve a community.
1st time home buyers get other benefits with these Fannie Mae, Freddie Mac and FHA loans. They offer lower down payment amounts, lower credit score ranges as well as higher debt to income ratios when compared to conventional loans.
Know Your Timeline - The Average Closing Time
The average closing time for a property that is getting a mortgage is around 45 days after going under contract. There are many moving parts and many things that need to happen throughout the home buying process which is why it is hard to close in 20 days.
It is important for you to know your timeline when buying a house. You don’t want to just start the process of buying a house when your lease is up next month. You will want time to get pre-approved as well as to educate yourself on the market and to figure out what your wants and needs are. We recommend starting the process around 4 to 5 months before a lease expires.
Should You Be Scared About Starting the Process?
NO! You have to start somewhere. You will never know where you are until you start the process. You will feel better once you start moving forward. If there is some work to be done in order to be qualified, then we will put together a game plan in order to help you achieve your goal of purchasing a home.
Other Articles that you may find helpful:
- The Simplicity of the Pre-Approval
- The Importance of Getting Pre-Approved
- The Difference between a Pre-Qualification, Pre-Approval & Pre-Commitment
- How Long Does it take to Buy a House? The Buyer Timeline
- What is Private Mortgage Insurance (PMI)
Hi! Meet Jeff Chubb