Buying a new home can be a perplexing task  in today’s market, even to veteran home owners.  Volatile conditions in the housing market and frequent changes to mortgage rules and regulations can make important decisions really difficult to make.  Its important that you have all the facts and fresh information when considering which first time home buyer programs fit your needs.

Doing Your First Home Homework

How much mortgage can I afford?When purchasing your first home, you’ve got a lot of homework to do before you begin painting and decorating. But there may be some good first time home buyer programs available to help you get started. Your marital status and the income, employment and credit history of you and your spouse are all vital factors in determining how you should find and finance your very own roof-over-your-head for the first time.  Here’s a few good first-time home buyer tips to remember.

Step #1 – How much can you afford?

Your first homework assignment is to figure out how much you can afford and how much you wish to spend. Typically it is recommended that your monthly payment amount is limited to 28% of your monthly gross wages. And don’t forget that your monthly payment includes taxes and insurances. Also, if you have other debts, your total debts including your new home mortgage should typically not exceed 36% of your monthly gross wages, depending on the mortgage program.  These percentages are also known as debt-to-income ratios or DTI.

You should also figure out how much cash you can afford for a down payment and closing costs, as this can be a sizeable amount and will help determine your financing options.

Get Help Calculating How Much Home You Can Afford

Step #2 – Research the Area

Once you have determined an approximate budget, you can begin to research areas where you would like to live and check the history of selling prices in your favorite neighborhoods. You can research available properties on local realtor websites and their histories on www.zillow.com. Speaking with local realtors and reading articles about your local housing market will also help you understand what’s going on and what’s in the crystal ball for the future of your market.

Step #3 – Get pre-approved for a mortgage.

First-Time Home Buyer Programs

One very productive step you can take before you begin home shopping is getting pre-approved for a mortgage. Pre-approval is a great bargaining chip in today’s housing market, and can make all the difference in a solid deal. To get preapproved, first you should research possible lenders, their programs and interest rates. Local banks and credit unions are a good place to start, but don’t hesitate to continue your research online. If you apply to multiple lenders within the same month, you can up your odds of getting a great rate without lowering your credit score significantly. The lenders will tell you the documents they require, but typically they begin with the application, bank statements, W2’s, tax returns, and information on landlords and other loans.

Get Pre-Approved For A Mortgage

First-Time Home Buyer Loans

The FHA loan is the most popular option for first-time buyers. The FHA loan is issued by a private lender, but is insured against default by the FHA, so lenders are more willing to make this type of loan. This willingness can help those with ‘okay’ credit scores purchase a home with as little as 3% down payment. An FHA first-time home buyer loan may result in a lower interest rate, but be aware that the FHA charges an upfront mortgage insurance premium of about 1.75% of value of the loan. Also, if you maintain less than 22% equity in your home, an annual premium is also charged that’s paid with your monthly payment.

There are also no-money down mortgage programs available that also work great for the first-time buyer.  100% financing mortgage options aren’t as widely available as FHA mortgages, however, because they’re subject to certain rules and conditions.  USDA loans are a great zero-down mortgage program that features low interest rates, no mortgage insurance and very reasonable fees.  They’ll only work for certain scenarios though because they can only be used in approved rural areas.  VA loans are also a terrific choice for qualified military veterans and their spouses to get a no-down payment mortgage.  In any case, lenders should provide you with full information on your loan options and costs prior to selecting your loan.  Here’s a recap of the most popular first-time home buyer mortgage programs:

  • FHA Loans – 3.5% Down Payment
  • VA Loans – No Down Payment, Qualified Veterans Only
  • USDA Loans – No Down Payment, Qualified Rural Properties Only

Step #4 – Take advantage of special programs

As you research financing options, you might find special programs for first-time homebuyers. Sometimes these are available through municipalities or other local government institutions. First-time home buyer programs are generally geared toward local people with low to moderate income and no other substantial assets. If you qualify for one of these programs, you could earn a very low (or no) down payment, a grant to help with your initial costs, an unusually low interest rate and/or limits on what lenders can charge for their services.

First Time Home Buyers

Often times first-time home buyer grants are available through state or local agencies so it’s important to look around.  You may not have to actually be a ‘first-time’ buyer to qualify, just have not owned a home for the last three years.  The best avenues to learn out about special first time home buyer programs in your area is to consult a HUD approved housing counselor or take a first-time home buyer class.  Here’s a few resources where you can research the availability of first-time home buyer grants, state and local first-time buyer programs as well as agencies that offer classes for first-time home buyers.

Step #5 – Go Shopping!

Once your homework is done, let the fun begin. First home shopping is potentially the most exciting … and exhausting … activity you will encounter. Just be aware that being a homeowner is much different from being a tenant. When the roof leaks or the water heater breaks, you’re the one to deal with it. Home inspectors can do a great job of pointing out the flaws and potential weak spots in a home, but they are never capable of identifying everything that can go wrong. One good option to consider is home warranty insurance, particularly if your home is new only to you. These warranty plans typically cover the larger systems in your new home like plumbing, electrical, heat and air, as well as major appliances. Home warranties can often be arranged by your realtor and many are available online.

By doing your homework, you can make your first home buying experience much smoother and reap the rewards of homeownership for years to come. So far in 2014, interest rates are hovering around historic lows and real estate values just beginning to recover, there’s rarely been a better time to take a serious look at becoming a homeowner.

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