For many people, the American dream still includes home ownership: it signifies that you’ve made it far enough where you can afford a place to call your own. Owning a home can give you peace of mind and a sense of ownership unlike anything else.
For first-time home owners, however, there can be many challenges. Because many first-time homebuyers are young, they may not have had enough time to build up the credit needed for a mortgage loan or have not quite landed that job that pays enough for the banks to be comfortable. The good news is that, while there may be some concern, there’s really no reason why most people in this country can buy a home. Here are a few things to think about for first-time homebuyers that can ease any apprehensions you may have.
Who Qualifies as a First-Time Homebuyer?
You may think that a first-time homebuyer is anyone who’s never owned a home before, which is true, but there are also many other caveats that can qualify people who may not have thought they could. According to the U.S. Department of Housing and Urban Development (HUD) there are several different criteria that can qualify someone as a first-time homebuyer. These include:
Anyone who has not owned a primary residence for three years. This includes your spouse, so if one of you have owned previously and the other has not, then you can buy one together as qualified first-time homebuyers.
Singles parents who only owned a home with a previous spouse are also considered first-time homebuyers, as well as any displaced homemaker that only owned a home with a spouse.
Finally, individuals who have only owned residences that were not affixed to a permanent foundation — such as a mobile home — or individuals who have only owned buildings that were non-compliant with building codes and would cost more than a new structure to bring up to code.
Now that you know if you qualify, here are some things to do when getting ready to purchase your first home:
Get Your Credit Up
The first and most important thing a bank is going to look at in order to give you a loan is your credit history. If you’re history is too low, you will either be rejected outright or will be forced to pay higher rates than you would if your history was good.
If you have bad credit, then there are ways to make it better. If you have credit cards with high balances, work on paying them down to avoid any late payments or defaults that will hurt your credit further. Also, avoid opening any new accounts with credit cards, or taking out any small personal loans before you try to get a mortgage. You need to have the best history you can before you approach a bank for a loan.
Find the Right Mortgage
There are many different types of mortgage loans out there, so you need to figure out which one best suits you and your family.
You can get mortgages with fixed rates or adjustable rates. Fixed rate mortgages will allow you to pay the same interest rate for the life of the loan. This can be good or bad: if the rates rise nationally, you will be better off, but if they drop significantly, you may need to refinance to save money. Adjustable rates move with the market, meaning your monthly payments can fluctuate up or down. You will have to decide which one is right for you.
There are also 30-year and 15-year loans. The longer the loan, the less the monthly payment is, but the longer you have to pay on it. It can all seem daunting, so you can have any questions answered by visiting California Mortgage Advisors.
Look for Federal Loans
The Federal government also offers loans for first-time homebuyers. An FHA loan can give you a great rate and a smaller down payment than traditional bank loans, which can save you money from the start.
There is a downside to federal loans, however. With a loan like this, you will be forced to pay two different types of mortgage insurance. Depending on your situation and the total cost of the loan, you may end up paying more in the long run than with a bank loan. Just do a little research and you should know pretty quickly if it’s right for you.
First-time homebuyers shouldn’t get frustrated. With a little help, you can find your first home.
Paul Jameson works as a property accountant and shares his knowledge online through his writing, being a semi-regular contributor to a variety of real estate and property blogs.