Buying A Home For the First Time
Tired of renting? Ready to buy your first home? The thought of buying a home for the first time can be invigorating but overwhelming at the same time. Frankly, if you’ve thought of buying a home and aren’t somewhat overwhelmed about the process, then it’s possible you haven’t been thinking much beyond the neighborhoods, square footage, and landscaping.
While there’s no question you will want to buy a home that has the qualities you’re looking for, you also want to make sure it has the qualities you’re looking for when it comes to price, payment, down payment, etc…
First Step to Buying a Home (Before You Pre-Qualify or Start Searching for Homes)
- How much am I comfortable spending each month?
- How much can I comfortably put down?
- How long am I going to live there?
If you have already started looking at houses but have not asked yourself these questions — back it up… You may have put the cart before the horse. It’s important to have an idea of how much you are comfortable spending each month and how much you can ‘put down’ at closing.
Having a firm grasp on how much you want to spend each month and at closing will provide a great foundation for buying a home for the first time. In fact, knowing what you can afford is just as important as a lender telling you how much you are pre-qualified to buy. What good is it if you qualify for a $3,000 monthly payment but are only comfortable paying $1500 based on your budget and long-term goals? Not much good at all. By knowing your goals and expectations for payments and out-of-pocket expense at closing, your mortgage planner can better help you take the next step of buying a home and to find out if you qualify.
How Do I Find Out if I am Pre-Approved?
Whether you’ve already found your dream home or are just thinking about buying a home for the first time, it is essential to find out if you qualify for the price range or payment range that you are targeting. Pre-approval for a home loan is based on a residential loan application that includes things like:
- Your credit profile – payment history, revolving balances, sufficient use of credit
- Income documentation – 2 yrs. tax returns and W-2s / 1099s, 30 days paystubs
- Assets available for down payment and reserves after closing, 2 months of asset statements
- Rental history
Benefits of Being Pre-Approved
The pre-approval process is easy and hassle-free. Not only do you have the peace of mind of knowing that you can buy, pre-approval also provides these amazing benefits:
- Shop with confidence – Peace of mind to know that price range that you can afford and qualify for
- Start looking for homes with Real estate agents – Many real estate agents require that you have a pre-approval letter before they start showing you houses
- Negotiate with More Buying Power – a pre-approval letter will show the seller and agents that you are a serious buyer, ready and willing to make an offer
Best Home Loan for First Time Buyers
The loan types for first time home buyers are very similar to those loans available for people who have bought homes previously. The process of qualifying for the home loan and types of products available will be dependent on the same qualifying factors.
There may not be a “best home loan for first time buyers,” but there are types of home loans that are more popular for someone buying a home for the first time. Below is a quick overview of the most popular loan types for first time buyers:
- FHA loan
- most popular option for first time home buyers
- backed by the Federal Housing Administration (FHA)
- forgiving qualifying and credit guidelines
- low down payment options
- gifts from family members acceptable for down payment
- buy as soon as 2 years after a bankruptcy
- Conventional loan – Fannie Mae / Freddie Mac Conventional
- great option for buyers with high credit scores
- 3% down payment required
- save with lower mortgage insurance (PMI) compared to FHA
- 20% down payment to avoid PMI and waive escrows (pay taxes and insurance separate from the mortgage)
- no mortgage insurance with loans as little as 3% down (LPMI)
- VA loan
- Zero down payment required
- No monthly mortgage insurance
- Flexible credit and qualifying guidelines.
- VA home loans are available to Veterans and active-duty service members that meet VA eligibility guidelines
- USDA loan
- Available with as little as zero down
- Low mortgage insurance options – less than half compared to FHA
- Exclusively available in “rural” areas as defined by the USDA Property Eligibility Map
- Income per family is also limited to the median family income level in the area.
The best home loan option will depend on you and your unique situation. While there may not be a universal best home loan option for first time buyers, we invite you to request Home Buying Assistance from the Dallas Mortgage Planners team at First Choice Loan Services Inc. to find out if you qualify. Through proper planning and analysis, we can help you find the home loan fit to YOUR needs.
Have other questions, check out our resource of frequently asked home loan questions OR