For first-time homebuyers, the biggest obstacle to overcome is usually the down payment. Making sure you understand the ins and outs of the down payment and closing costs will help you throughout the home mortgage loan process. The Mortgage Planners at Fairway are here to help answer any questions you may have about home mortgage loans.
Down payments for mortgages for first-time homebuyers can be as little as zero, depending on the type of loan, and is usually around 3.5% to 5% of the purchase price. There may be other options available and talking with a Mortgage Planner is your best bet at understanding loan options.
For first-time homebuyers using an FHA loan, you will need to have a 3.5% down payment. The down payment on an FHA loan does not need to come from your savings! A family member can make a “gift” to you to cover the down payment on your first house. Some people will also choose to get a loan from their 401(k) retirement plan or withdraw money from an IRA. There are rules that a Mortgage Planner can help you understand that allow you to take money from a retirement plan to buy your first house without paying any tax penalties.
If you can pay more than 3.5% for your down payment, you may consider a conforming loan for your first time home purchase. Conforming loans require a 5% to 20% down payment. If you put down more than 5%, but less than 20%, you would have to pay private mortgage insurance. Private mortgage insurance, or PMI, protects the lender in the event the loan goes into default. So, PMI does not protect you, but it does allow you to buy a house with less than a 20% down payment.
In addition to the down payment on your mortgage (if required) there are also closing costs and pre-paid expenses involved with a home purchase. You generally have to pay some lender costs, an appraiser, and legal fees associated with transferring the title the house from the seller to you the buyer. In addition you will pay homeowners insurance for one year in advance, and the lender will establish an escrow account which will take a portion of your monthly payment and save it to pay your future property tax bills, and homeowners insurance bills. Most first-time homebuyer loans, such as the VA loan, the USDA loan, or an FHA loan, will require you to have an escrow account to pay for the future tax and insurance bills.
Some first-time homebuyer programs allow you to negotiate with the seller of your new house, to have the seller pay 3-6% of the purchase price of the house toward your closing costs. Doing so can really help reduce how much money you need to buy your first house. Be sure to talk to your real estate agent before you make an offer to negotiate that into the deal. It is always a great idea to talk to a lender first, so you can know exactly what the closing cost will be and how much you will need the seller to pay.
As qualified FHA, VA, and USDA mortgage lenders, the licensed Mortgage Professionals at Fairway Independent Mortgage can help you determine the best loan program to use for your first home. We will help you decide which loan program is best for you, the right amount for your down payment, how much the seller should pay for your closing costs, and show you the other considerations to make sure you get the best financing for your first home purchase. You can trust Fairway Independent Mortgage to make your home loan as stress-free as possible. Call me today to set up an appointment.