Getting your paws on a new home isn't so hard 
Now, you can put as little as a 3% down payment on a fixed-rate loan

A first time home buyer can often be at a disadvantage to other buyers, due to having low funds, student debt, or other financial issues. Thankfully, being a first time buyer has some benefits too, such as being offered lower rates or smaller down payments on a home loan.

Who Qualifies as a First Time Home Buyer?

• The definition of a “first time buyer” isn’t restricted to people buying their first homes. According to the Department of Housing and Urban Development, it also includes the following: 
• A person who has not owned their principal residence for at least 3 years. 
• A single parent who previously co-owned a home while married. 
• A homemaker who previously owned with a spouse, but no longer receives financial support from that spouse. 
• A person who has only owned a residence not affixed to a permanent foundation, such as a mobile or trailer home. 

This allows many people who wouldn’t assume that they qualify for a first time mortgage to take advantage of the benefits offered to those purchasing their first home.

How to Choose the Best Lender for Your First Home Purchase

Finding the right lender depends on a number of factors, of which the interest rate is only one. Here are some of the main things to look at when weighing up the various lenders:

• Loan size: A basic requirement any borrower should expect of their lender is that they can offer the right loan amount. If you need a $250,000 loan, then there’s no use in going with a lender that will only approve $200,000. On the other hand, if you’re approved for $300,000, it’s important to be aware that you don’t have to spend that exact amount. You can still purchase a home for $250,000, and only borrow the amount you need. 
• APR: The first thing many borrowers look at when comparing lenders is the interest rate. While this is important, the best thing to look at is the APR. The Annual Percentage Rate, or APR, includes the interest rate plus processing fees and points, and therefore gives a more accurate picture of what you’ll be paying the lender each year. If you want to know your total cost, APR is the place to look. 
• Closing costs: Once your mortgage is approved, you will need to go through what’s called a closing process. At this stage, lenders can add any number of fees, including origination, surveying, title, and third-party fees. When you apply for your mortgage, it’s worth checking which lenders are willing to waive or discount these fees. 
• Loan terms: The term (or duration) of your loan can have a big impact on your APR and total loan amount, and therefore it’s important to select a term that suits your needs. The shortest term is usually a 15-year mortgage, though it is possible to find 10- or even 8-year terms, which include higher monthly payments but a lower interest rate. The longest term is usually a 30-year mortgage, which includes lower payments but a higher rate. 
• Customer service: Lastly, don’t forget the importance of customer service. As you go through the process of buying your first home, you’ll undoubtedly have a lot of questions, and it’s important to go with a lender that is willing to spend time on your application and offer the best deal to suit your specific needs. Many lenders now offer online applications, making it less costly and more convenient to apply for a loan, as well as personal loan agents and online chat applications.

The Advantages of Being a First Time Buyer

There are 2 major advantages to being a first time home buyer: 

• Qualifying for lower down payments through government-backed lending programs or offers from individual lenders 
• Being able to deduct mortgage-related payments from your tax bill

Many first time home buyers find that down payments are the biggest obstacle to purchasing a home. Using a median house price of about $250,000, and a typical minimum down payment of 20%, we find that most lenders expect borrowers to pay at least $50,000 as a down payment on their home – and many people just don’t have that sort of money lying around. Thankfully, some lenders offer home loans to first time buyers for down payments of as low as 3%. There are also the government-backed FHA loans – which guarantee down payments of 3.5% for borrowers with at least a 620 credit score, and down payments of 10% for borrowers with as low as a 580 credit score. To qualify for an FHA loan, the borrower must purchase private mortgage insurance (PMI), which protects the lender in the event the borrower defaults on a portion of the loan. Fortunately for first time buyers, certain mortgage expenses are tax deductible. For example: you can deduct interest, provided your mortgage is secured by your home and is worth less than $1 million; and you can deduct real estate taxes. Unfortunately, PMI payments stopped being tax-deductible as of 2017, but this may change again in the future. If you’re a first time buyer, it’s worth consulting a tax specialist about how you can use your loan payments to reduce your tax bill.

The Short of It

Being a first time home buyer doesn’t necessarily mean you’ll need to make a huge down payment or that you’ll be taken advantage of by lenders. As long as you have a decent credit score and understand your rights before beginning the process, you should be able to come away with a mortgage to suit your needs – and that won’t drain your bank account on day one. When comparing lenders, don’t forget to look at all angles, such as terms, APR, and closing costs. And always ask what they can do for you as a first time buyer.

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Want to know more?  Reach out to me.  It is a good idea to have someone on your side when purchasing a home.

Yamel Romano

RE/MAX Realty Advantage

(210)404-5590