First time homebuyers have lots of questions about this simply because they do not know the questions to ask or what the mortgage process is like. Frequently I will hear "I"m not sure what questions I have simply because I'm not sure of the process". For those people it helps to break it down into sections.
First – how much money do you have for a down payment? Do you have very little and need assistance or do you have several thousand dollars in the bank? If you are buying in a rural area, you may be able to qualify for a USDA loan and do zero down. If you are buying in the metro area, you may be able to qualify for down payment assistance. If you have VA eligibility, you can buy a home with zero down. If you have at least 3-5% for a down payment, you may want to look at a conventional loan. For those with more money, you will probably go conventional. FHA requires 3.5% down.
If you have less than 20% down, you will need mortgage insurance on conventional loans. Don't look at mortgage insurance as a bad thing – for some, it can even be a tax deduction. Mortgage insurance will go away once you have 20% equity in your home, as long as you meet certain requirements. For some people, it makes more sense to put 5-10% down and keep money in reserves. That way if there is an emergency, you have access to cash.
Second – what is your credit score? If you have a high credit score, you can do just about any loan from conventional to FHA, etc. The higher your credit score, the lower your interest rate. If your score is high and you are doing a conventional loan, it will also help to lower your mortgage insurance rates. If your credit score is lower – even at 680, you may want to compare FHA and conventional loans. Ask your loan officer to give you payments on both loans – the mortgage insurance and interest rates may make an FHA loan a better option. For those with scores lower than 680, it may make more sense to go FHA – especially if you do not have 20% down. If you are looking at special programs, you need to make sure your credit score will work for those programs.
Third – Do you have anything special about your situation? Do you have VA eligiblity from military service? That would allow you to purchase a home with zero down. VA loans require a funding fee, but if you have a disability from military service, that funding fee may be lowered or even waived. Are you buying outside the metro area? Check with your loan officer, you may qualify for a USDA loan and those are also zero down. Do you qualify for any first time homebuyer programs? If so, ask your loan officer what is available to you. There are different programs and not every mortgage company participates in the first time homebuyer programs. You may have to do some digging on your own to find the programs and the loan officers that can help you. Some programs have income limits, some have credit score requirements and some have location requirements.
These are all things that your loan officer should help you with. Talk to them, make sure they know what your situation is and what you are comfortable spending. Make sure you ask questions through the process. Sometimes I meet with clients and just go over the entire process so they know what to expect, then we meet later if there are more questions. Sometimes it's just long phone conversations. Both will work, just make sure you understand what is expected of you and if there are any special concerns on your end. Buying a home is exciting time, but it can be very frustrating at the same time! The more you understand, the more fun it will be!
Leslie Vanderwerf, NMLS ID#335509, American Mortgage & Equity Consultants, Inc, An Equal Housing Lender, NMLS#150953 - Email - Website
