Buying a home for the first time is a significant milestone in your life! It typically signifies you are ready to settle down in a location for at least five years and plant your roots in the community. The home buying process may be daunting if it’s your first time, so see some frequently asked questions and answers below for guidance.
Is it the right time for me to buy a home?
You’ll know it’s the right time for you to buy a home when you’re financially ready and when you genuinely want to be a homeowner. The best time to buy is during a buyer’s market, when there’s an excess of inventory on the market and it drives prices down, and when mortgage rates are low. Deciding when to buy a home is a personal decision that mainly comes down to personal finances and the desire to be in one location for a long period of time.
What types of loans are available for first time buyers?
There are a few different types of loans popular among first time homebuyers. All of the options are popular because of their accessibility, low rates, and friendly terms.
Conventional loans are a great option for buyers with a strong credit history and a down payment of 10%. However, Fannie Mae’s HomeReady loan, Freddie Mac’s HomePossible loan, and the Conventional 97 home loan offer the option of a 3% down payment allowing extra flexibility.
A Federal Housing Administration (FHA) loan is a great option for homebuyers with a credit score as low as 500 who lack the funds for a hefty down payment. The mortgage is insured by the Federal Housing Administration and can allow down payments as low as 3.5%.
If you qualify for a VA loan, it is in your best interest to take advantage of it! The loan is for those associated with the military, including veterans who have served and their family members. The VA loan offers 100 percent financing, simplified loan approval standards, access to the lowest mortgage rates available, and a 0% down payment.
The USDA loan is available in rural areas and low-density suburban areas. A town classified as “rural” usually has a population of fewer than 20,000 residents. The loan offers low mortgage rates, no down payment, and cheap mortgage insurance.
How much of a down payment do I need to make?
Your family and friends might be throwing around the number 20% of the property price, but you can actually put as little as 3% down if you choose to do so. Your down payment depends on the loan program you use. With an FHA loan, you put 3.5% down, VA loans 0% down, USDA loans 0% down, and conventional 97 loans 3% down. Many homebuyers will put 6% down, which is $9,000 at the time of purchase of a $150,000 home for example. The benefit of a larger down payment is smaller monthly payments and less interest over time. If you do put 20% down, you will enjoy the lack of mortgage insurance, which is required for loans with a down payment of less than 20%. Typically, 4%-5% of your down payment goes towards closing costs.
What is PMI?
PMI stands for private mortgage insurance. This type of insurance is required when you place less than 20% down on a conventional loan. It ensures that you will pay back the mortgage and is in place for lender security.
What are mortgage points?
Mortgage points, also known as discount points, are fees paid directly to the loan lender in exchange for a lower interest rate. It makes sense to buy mortgage points upfront if you plan on paying on your mortgage for the next 15, 20, or 30 years. By having a lower interest rate, you will save money in the long term.
Should I get a home inspection?
Yes, you should get a home inspection, even if it’s not required! Home inspections find structural or systemic problems you want to know about before making a major purchase decision. The inspections cost a few hundred dollars, but it’s well worth it if you find out you will need a new roof or another major repair within the first year of purchasing the home.
Where do I start?
If you’re looking for guidance through the home buying process, Heney Realtors is here to help! We know the central Vermont real estate market and have helped many first time home buyers over the years. Contact Heney Realtors today to get started on buying your first home!