The number one mistake first time home buyers make is to buy a home on impulse. You need to arm yourself with as much information about the process so you know where to begin. This includes a thorough understanding of the real estate market and the current mortgage market. There is no “too much information” when it comes to home buying.
So to help you prepare for the tedious process of home buying, here are some facts that you need to know:
Access to funds matters
According to statistics, 25% of buyers age 33 or younger would move up their purchase timeline if only they had access to downpayment funds. Further, about 57% of all millennials would welcome the help of their lender.
This means you must not only have money saved, but you must also seek our loans. In this case, you need to get pre-approved or pre-qualified. A seasoned mortgage lender can immediately tell if you are pre-qualified for a loan.
A word, though, pre-qualification doesn’t guarantee that you will really get that amount. The reason is that pre-qualification doesn’t look at all your financial information. Therefore, once all your information has been reviewed and verified, you will sometimes find that the amount you pre-qualified for is different from what you will qualify for.
If you want a better picture of the amount to expect, you need to get pre-approved. During the process of pre-approval, more information about your financial history will be reviewed. Through pre-approval, you are in a better position to negotiate because by then, the seller would know that what you’re offering is more solid.
Both pre-approval and pre-qualification will save you the time and heartache of looking at homes outside your price range.
- 20% downpayment is not true
There are about 74% of renters who are afraid to buy a home because they think they can’t afford the downpayment. According to a survey conducted by the National Association of Realtors:
- 39% of nonowners believe that they need to pay more than 20% for a down payment,
- 26% believe they need a downpayment of 15% – 20% of the total price of the home,
- 22% believe they need a downpayment of 10% – 14%
In reality, however, downpayment required on purchase mortgages (as of 2016) was only 11%. There are even first-time buyers who only put in under 8% as a downpayment.
So does this mean you can expect to pay as little as 8% – 11% downpayment on all types of homes? The answer is “it depends”. The amount of down payment you will be required will be based on your financial circumstances, the price of the home and its location.
You can buy a home with a mortgage with no money down
Yes, this is possible through the U.S. Department of Veterans Affairs and the U.S. Department of Agriculture loans. In 2016, 16% of first-time buyers were not required to put any money down.
Further, 36% of loans for buyers under 35 were asked to put less than 5% down through the VA and USDA. Conforming loans backed by Fannie Mae and Freddie Mac required 3% downpayment while the traditional FHA mortgage would only require 3.5% downpayment. Do you know how much these numbers translate to?
This means that you can buy your home for the first time and not have to break the bank if you know your options.
You don’t need a perfect credit score to buy a loan.
Sure, a stellar credit score will get you a grand home but for first-time home buyers, you only need fair credit to secure a nice home for you and your family. You just need an average FICO of 713. Sometimes, even a score of 639 is more than enough.
If you put all these facts together, you will realize that owning your first home is just within the reach. Simply become educated home buyers to know all your options.