We are nearing the conclusion of 2018; a time of year where many compose a list of affirmations, manifestations, and resolutions for the year ahead. Perhaps becoming a homeowner is at the top of your list for 2019 or somewhere in the near future. DDS is here to dispel the myths often associated with being a first time home owner and get you on the path to reach your home buying goals.
Credit Score: If you’ve been doing some light research, talking to family, friends, and colleagues who own homes one of the primary things they may have mentioned is the importance of having an impeccable credit score to be in the ranks of owning your dream home. While your credit score and history does play a key factor in the home buying qualifications; you do not have to have a perfect score to qualify for home ownership. In fact, it is possible to be considered for a home loan with a credit score as low as 580, however many lenders prefer that the applicants have a score between 620-640 minimum.
In terms of credit history be sure to make your payments on time whether it be your student loans, car payment, or credit cards bills. Avoid running unnecessary hard inquiries on your credit and opening frivolous accounts to retail and department stores. Also, having a variation of accounts is a good look on your credit history. For example, if a lender can see that you are in good standing with your student loans, your credit card has more credit available than used on your credit line, and your car is 6 months away from being paid off these factors show the lenders a variation of things including your financial integrity.
Types of Home Loans: The types of home loans available vary depending on the needs and desires of the potential homeowner; there are loans with a Fixed Rate which is the most common mortgage loan. With this type of home loan your interest and monthly payment is set at a “fixed-rate” or same amount throughout the life of the loan which generally ranges from 15 to 30 years. This loan is good for buyers who plan to spend the majority of their lifetime in their home, raise a family, and perhaps pass the home down to create generational wealth.
Another home loan is the ARM (Adjustable Rate Mortgage); this loan offers interest rates at a lower cost than the “fixed-rate” loans for about a 5 to 10-year period. However, once that time period is up your mortgage rates are adjusted annually and your monthly payments will vary depending on the current housing market. Therefore, if mortgage rates are up then there will be an increase in the monthly mortgage and if they decrease so will your monthly payment. This loan is recommended for buyers whose credit score may not qualify for a fixed-rate home loan or buyers who intend on moving or selling before the span of the fixed-rate mortgage is up.
Then there is the FHA (Federal Housing Administration) loan, with these loans, buyers are able to put down less than the 20% the majority of lenders require. The FHA loan permits its lenders to make a down payment of as little as 3.5%. Mortgage rates are generally fixed and a PMI (Private Mortgage Insurance) is calculated into your monthly mortgage payment. There are a few limitations that apply with this type of home loan but it is still a great option for those looking to buy. The VA (Veteran Affairs) home loan is afforded to those who have served in the United States military. Recipients who qualify for this loan may be able to purchase their ideal home with no money down and 0 mortgage insurance guidelines. The stipulations for the VA home loan are strict; the potential home must be the buyer’s primary residence (i.e. no rental properties) and meet the minimum property requirements.
Property Tax and Down Payment Options: It is pertinent that you as a future home buyer understand the importance of paying your property taxes. When your monthly mortgage is calculated be sure to have the lenders factor in your property taxes. There have been incidents where home owners weren’t aware that they could request that their property taxes be added in with their monthly payment and at the end of the year are slammed with a $3,000 bill for property tax. This is one of the easiest ways that a homeowner can lose their home to the bank. Unless you know for certain you will have an additional $10,000 lying around it is best to pay your taxes as you go. It may appear to be a better deal to pay a lower mortgage rate throughout the year but the taxes will catch up with you.
In addition, saving for a down payment can be a challenge; especially when trying to maintain the current expenses of your livelihood. Do not fret, there are numerous programs and grants available to assist first time homebuyers with a down payment. Another option is to borrow from your 401K or retirement savings, and in some cases homeowners have used money from policies their parents and grandparents created on their behalf when they were children and now that they have come of age the policies have accrued a hefty balance which can be used to purchase or put towards their first home.
Owning your first home is a lot more attainable than some may have imagined. Consider all the money wasted on renting; many of us are paying a mortgage every month in the amount spent and do not realize it. There are many perks to home ownership; one being tax write offs and the ability to remodel and design your home however you see fit. Even if your goal isn’t to become a homeowner in 2019 it is never too early to begin preparation and meet with a financial advisor to see where you currently are financially and what it necessary to get you on track to fulfilling your first time home buyer needs.
A' cylo ( ˈā/ˈsil/ lō) – “I am a writer with a passion for using my voice to speak on the issues many refuse. My hobbies include writing, dancing, and gardening. A fan of all shades of blue; with a slight addiction to popcorn, chips and salsa. I teach but more importantly I learn; continuously. Did I mention I'm a writer; and I'm serious about my content?!”