Secrets First Time Buyers Should Know

There's a large number of homebuyers in recent years that are buying a home for the very first time it's upwards of 45% of the buyers are purchasing for the first time. The most important factor for these buyers are any buyers of course is the financing. over 77% of buyers obtain a mortgage to finance their home this is according to the consumer housing trends report. However, there are things that many first-time homebuyers wish they knew about financing before they started and that's what we're going to cover here.

The Myth of 20% Down

As you may already know it's an accepted fact that you need to have a rather large down payment to purchase a brand new home. This is something that often causes many would-be buyers to stop because they simply don't have the funds for the down payment. The down payment is normally considered to be 20% of the purchase price of the house.

However, the truth is even without this large down payment you can still purchase a house. The 20% down payment is a myth it's not a requirement and it's not written in stone. If you don't have the 20% down there are other alternatives. One of the main ones being what's called private mortgage insurance or PMI. Using PMI you can still be in a position to purchase a house even if you have a very small down payment.

In the most recent report, it was discovered that less than 25% of buyers put a 20% down payment on their home and 52% had less than 20% down overall. Obviously, this means that there are workable alternatives to the 20% down myth about buying your home.

There are no one size fits all loan programs

As with many things in the financial world, there are numerous ways to finance a house. with multiple loan options available it really comes down to deciding on which one is going to be the best for your particular situation. This can require a little bit of time and research but it's not rocket science.

There's a lot of talk about the standard 30-year fixed loan which has become one of the most popular ones in the United States because it offers the advantage of a set interest rate regardless of what happens to the market. However, if you legitimately are not going to be living in the home for 20 or 30 years then you may really want to opt for an adjustable-rate mortgage as you could be a better fit for you. 

The adjustable-rate mortgage will allow you to get a lower initial interest rate compared to the fixed-rate mortgage however it's not guaranteed to remain the same over time when the market changes, however, it's important that you understand what you're getting into before you choose this type of loan.

A government-backed loan through the Federal Housing Administration might be your best bet if you have concerns about a low down payment or low credit score being an issue. The Veterans Association also offers a great loan program if you qualify by having served in the Armed Forces at some point in the past.

Taking Your Time to Find the Best Lender Can Save You A Lot of Money

Here's one of the most important things first-time buyers said after they went to the process they wish they had taken time to shop around for a lender. Despite the fact that buying a home is the biggest investment most people will ever make many people do not take the time to shop around for multiple lenders and compare interest rates and down payments.

Statistics show that 54% of first-time buyers only consider one lender to finance their home. This puts you as the buyer at a huge disadvantage. The Consumer Financial Protection Bureau recommends talking to at least three lenders we recommend you talk to at least five.

It's important that you take the time to look at these multiple lenders, compare their rates and terms, and see how they compare to your particular situation so that you can make sure that you get the very best option. Taking the extra time to do this can literally put thousands of dollars back in your pocket over the course of just a few years. If you don't know where to find local lenders in your area you can use zillow.com and they'll help you find lenders in your area.

Why You Should Get Pre Approved For Your Mortgage

Statistics show that the majority of buyers upwards of 80% begin the pre-approval process and get pre-approved before they begin shopping for a house. This plays a huge role in helping you get past the major barriers of purchasing a home and speeds up the process.

By doing this your home search can become extremely targeted you don't waste your time looking at homes that are outside of your budget and avoid potential huge disappointment in the future. Any lender you choose should be willing to take the time to review your financial information I'll let you know what you'll be allowed to borrow.

Another benefit to doing this is that you will catch errors that may be on your credit report and this will give you plenty of time to get them fixed. You could end up with a higher interest rate mortgage because of a lower credit score the next tens of thousands of dollars in your pocket or out of your pocket depending on what your situation is or the life of the loan.

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Real estate agents also will look upon those who are pre-approved and pre-qualified as serious shoppers who have done their homework and they'll be much more apt to work hard for you to help you find the home of your dreams. There are many real estate agents that simply will not work with anyone unless they get a pre-approval from a lender.

Take the time to put into work and work through the challenges that could be ahead of you in this process and you will end up getting the home of your dreams faster and pay less than if you don't.

What About Student Loans?

Given the state of the housing market right now you may be thinking to yourself it's a good time to buy a home. However, in the past, it may have concerns you because you have a student loan and student loan debt may be hanging over your head causing you to think you can't get a mortgage or buy the home of your dreams. Any amount of debt that you have open is going to affect the interest rate and affect whether you qualify for a mortgage however there's no difference between student loan debt and any other debt.

Student loan debt is looked at the same as auto loan debt, bank debit, or credit card debt. All of these things will be assessed by your potential lender when you begin the process of trying to get a mortgage. They do this to determine whether you will be able to manage the additional monthly accrued from the mortgage.

Here’s how to find a great mortgage lender:https://www.kcmortgageguy.com/resources/2020/3/10/looking-to-buy-a-house-start-with-your-mortgage-lender

It's important to understand one of the biggest Qs they look for is What's called the debt to income ratio as well as the overall credit score when you are applying for a mortgage. You should consider how both your monthly student loan payment and a potential mortgage payment would come into play for your particular situation.

The Debt to Income Ratio

What happens when you apply for a home loan is the lender will figure up your debt to income ratio this is done by adding up all your existing monthly debt payments and you're expected potential mortgage payment. They will then divide that number by your gross monthly income or the amount that you earn before taxes and other deductions and this is what equals your debt-to-income ratio.

All of your outstanding debt payments come into play when figuring your debt to income ratio. These include things like auto loans, student loans, credit card payments, other mortgages, and any other required monthly payments. The only things that are not included are things like utilities, grocery bills, or car insurance payments.

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If your debt to income ratio exceeds 43% this is usually the cut-off they're not going to approve you when it's this high. They like to see it at 36% and even under 28 is ideal. 

When it comes to federal student debt if your debt to income ratio is too high there's often some flexibility in the amount that you pay every month on the student loans. So you can go back and make adjustments on the amount that you pay every month on the student loan to ideally get your debt to income ratio into the proper range so that you will qualify for the mortgage.

Take your time and do your homework and you can be a success getting your first home even if you have student debt.

Author Bio

Will Foster | First State Bank Mortgage Senior Loan Officer

I became a mortgage lender in 2010, right after the "bubble" popped, and the mortgage industry underwent an incredible transformation. This has given me a unique advantage in the fact that I have never known anything other than the highly-regulated world we now live in.

Throughout my years of experience, my primary goal has been to keep up with the constant changes in the industry so I can help my clients investigate all of their options and maximize savings. In addition, because I specialize in Conventional, FHA, USDA, Jumbo, portfolio, and VA refinances and purchases, I can help a wider variety of individuals, families, and investors identify and secure the right loan to best suit their future interests.

The mortgage process can be a little confusing and even overwhelming these days with all of the regulations.  I guide my clients through the process from start to finish, and I try and make it as painless and hassle-free as possible.