Purchasing a house for the first time requires careful planning and consideration so you can make the right financial choice for you and your family. Here’s what you ought to consider when your determining whether or not you should pull the trigger on the big ticket purchase…
There’s two types of mortgage loans available in the market contrary to what you will read here and or see on the internet there’s government-backed loans which is loans backed by Fannie Mae and Freddie Mac and then there’s government-insured loans such as loans insured by the Federal Housing Administration.
Being a first time buyer in today’s housing market is not what it used to be. The specific programs for first-time home buyers are far and few in today’s environment. The tax programs and tax advantages for being a first time buyer also for the most part are no longer existent. The bulk of these programs were available in the financial crisis to spur homeownership and promote economic activity. Since then there are programs that require no and little down payment, but they are not necessarily specific to first-time home buyers. Here are some things you need to know when determining what programs, you may be eligible for.
Fannie Mae Home Ready and Freddie Mac Home Possible the two programs mirror each other, and they allow you to purchase a house with preferential rates below market. You may be eligible for these programs by determining if the property in which year desiring to purchase is eligible based on your area income limit. Some areas for example in Sonoma County California have an income limit of $84,000 per year which means if you make more than $84,000 a year you would be ineligible for that program. These programs also require at least a 700 credit score or better to take full advantage of the program benefits.
Fannie Mae and Freddie Mac conventional financing with 3% down. Be warned for monthly PMI associated with this mortgage type can be a little bit pricier than if you were to put down an extra 2% resulting in 95% financing however this program is available for both the single-family homes and for a condo and does require a stable financial profile.
FHA loans with 3.5% down. This one by and by far is the most popular because it requires a 3.5% down payment and your credit score can vary from good to bad and you would still be eligible for this program as this program is much more conducive to helping families from all walks of life.
It is by far the most flexible and widely used program that can bridge the gap between renting and homeownership. This program is flexible on interest rates and terms and on debt to income ratio whereas the conventional loans are a bit more stringent.
All of the above programs will allow you to use gift money and or your own funds for the entire down payment. This is tremendously helpful if you’re short on cash to close. Couple that with a seller credit for closing costs and you could be putting no money down to buy a home regardless if it’s your first home or move up home. There are other programs such as State Grant programs, as well as Cal Hatha. Those programs would require no money down at all however there’s income limitations on those programs and if you make too much money you would be ineligible. Beyond that those programs also are going to be higher in terms of payment the interest rate will be higher the total monthly mortgage payment including principal interest taxes and insurance and any applicable monthly PMI would be higher decreasing affordability in the process.
In a high-cost markets such as a market where the average house price is $550,000 or more those programs are going to yield a much higher payment which means you would need higher income to support being able to have that higher payment. T
Other considerations….
The other challenges that you might face with a no money down mortgage loan program regardless if you qualify is it’s not just a qualifying that comes to buying a home. The seller of the property has a choice on which offer to take when selling their home to a possible buyer.
If there are other buyers in a competitive marketplace, the seller of the property might look at another offer and if that other offer is stronger than yours with more down that could be problematic for getting an accepted offer.
Best advice? If possibly come into the transaction with gift money or the ability to come up with your own down payment monies on your own volition. Doing so will yield you a better interest rate and lower total monthly mortgage payment which is key as well as giving you a well-positioned negotiating chance to getting your offer accepted by a home seller.
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