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First Time Homebuyer Information
What’s the first thing I should do?
The idea of purchasing your first home is bound to bring many questions to mind. This is a natural reaction, as it 
is one of the biggest decisions you will ever make in your life. Rest assured our team is here to assist you in understanding the loan process with our goal being to make your experience a pleasant one.
Get a mortgage approval letter
Before you go shopping for anything, you need to know how much money you have available to spend. Shopping for a home is no different. Your Mortgage Banker can help you determine how much home you can afford, and put it in writing via amortgage approval letter. Even if the first thing you do is contact a real estate agent, which many people do, the agent will most times insist you have mortgage approval letter so they know which price range of homes to show you.
Seeking complete approval for financing prior to making an offer on a property is a sound strategy that can help you get the best deal possible, especially if you plan to make a minimal down payment. The seller is often leery of the stability and reliability of the buyer if the buyer is only capable of making a down payment of 10% or less. This can cause you to lose a significant amount of negotiating ability, by being perceived as a weak buyer rather than a strong one. This is why it is very important to get full loan approval in advance and provide a written confirmation of the loan approval when an offer is made. Then you will be perceived as a cash buyer.
Get a real estate agent
The process of finding a home can often be more complex than you may expect. With the help of a real estate agent, you can be assured that you will receive the best service with far less hassle and worry than doing it on your own. If you don’t already have an agent, we work with many of them daily, and can certainly recommend any number of them to you.
Your real estate agent:
- Listens to your wants and needs to find the perfect match between what you can afford and the home that best fits your needs.
- Accesses, by computer, all of the properties for sale in your desired area. “For Sale” and newspaper ads are not always a true reflection of everything that is on the market. Your real estate agent knows everything that is available at a given time.
- Helps you negotiate. Once you’ve found the home you want to buy, your real estate agent will write up your offer and present it to the seller. This gives you the best opportunity to have your contract accepted.
- Gets the price right. Your real estate agent is a specialist who knows the market inside and out so you will get the best price possible.
- Allows you to make your own decisions. A professional agent works for you and respects your opinion. They will not try to force you into a decision you don’t feel comfortable with.
- Helps protect your rights. Real estate laws have become increasingly complicated. Therefore, your real estate agent is there to assist you in every way.
- Does not charge you anything. Your real estate agent’s services are absolutely free to you - the seller pays their commission.
First Time Home Buyer Loans
First time home buyer loans allow buyers to get into a house more easily. However, just because you’re a first time home buyer doesn’t mean you should use a first time home buyer loan. These programs have restrictions and strings attached. While they are a perfect fit for some, first time home buyer loans are the wrong choice for others.
What is a First Time Home Buyer Loan?
A person’s first home purchase is a big deal. It takes time, energy, and money. To help with the money hurdle, some people use first time home buyer loans. These programs vary depending on where they’re offered, but the general idea is this: first time home buyer loans give financial assistance to qualified borrowers. They may do this in the following ways:
- Allow for a very low (or no) down payment
- Subsidize interest costs (they pay all or part of it)
- Offer grants
- Forgive loans
- Limit fees that lenders are allowed to charge
- Defer payments
Note that first time home buyer loans available to you might offer any or none of the benefits listed above.
Who Gets First Time Home Buyer Loans?
As you might imagine, individuals who have never owned a home are good candidates. In addition, some programs offer first time home buyer loans to people who have not found a home within the last three years. Again, check to see what’s available to you.
You may have to meet certain income restrictions to qualify for a subsidized first time home buyer loan. In general, these programs try to limit benefits to people with low and moderate income levels. If you earn too much, you won’t qualify for the program.
First Time Home Buyer Loan Restrictions
Most programs put a dollar limit on the property you’re buying. You probably can’t use a first time home buyer loan to buy the more expensive properties in your area. Instead, you’ll be limited to properties on the lower end of the spectrum. Again, the idea is to benefit people who have the most need.
You also have to live in the home as your primary residence. If you're going to rent the place out, don’t use the first time home buyer loan. Finally, the home you buy most likely has to meet some physical requirements. It must be in good condition and free from any safety hazards (such as lead-based paint, for example).
First Time Home Buyer Loan Pitfalls
For some first time home buyers, these programs are perfect. They open the door to home ownership where a family would not have been able to buy a home. Communities also benefit from first time home buyer loans – homeowners take care of their property, get involved, and contribute to the economy. Nevertheless, first time home buyer loans can be the wrong choice in some cases. With a subsidized first time home buyer loan, you face some challenges:
- Lower value home may not be the home you want
- You might lose some of the benefits of the program if you sell your home too soon
- You may have to pay recapture tax for some of the benefits you received
- You may be limited to a short list of loan types (only 30 year fixed rate mortgages for example)
- You may have to share increased home values with the program
Given these restrictions, you may do best to avoid subsidized first time home buyer loans. You’ll probably come out ahead using a plain-vanilla mortgage if you’ve got decent credit. With a FICO credit score above 720, you probably won’t see an advantage with the subsidized first time home buyer loan. Once you get below 680, the subsidized program will start to look better. These days, you can get traditional mortgages or FHA loans with very little down.
- How FHA Loans Work
The best thing to do is to explore all your options. Take a look at what your traditional mortgage lender is offering, and compare it to the subsidized first time home buyer loans. Once you see how the numbers compare, consider the cost of flexibility.