First-time home buyers can apply for various loans and grants to finance a new home. Are you a first-time home buyer? Start by learning your budget and getting to know the loan-application process. Then review available grants. That way, you’ll be better able to find loans and grants that are the right fit. Finding the right loan will make purchasing your first home even more enjoyable.
How To Learn Your Budget
Before shopping for homes and applying for loans, you should decide how much home you can afford. A common rule is that your mortgage shouldn’t cost more than 28% of your gross monthly income.
Your mortgage isn’t your only expense. While some lenders allow down payments as low as 3% of the purchase price, most need buyers to pay at least 20% in cash. The lender may demand private mortgage insurance if a buyer can’t afford a high down payment.
Another expense is closing costs, ranging from 2% to 5% of the purchase price. Consider the home you want to buy. Can you afford to make necessary repairs? What will utilities cost? While you might be able to handle a mortgage, you might not be able to afford too many monthly expenses. A brand-new home might be a better bargain than a fixer-upper that needs a lot of renovations and costs a fortune to heat.
How To Get a Loan
When applying for a loan, you’ll typically have to provide proof of sufficient income for the last two years. You’ll also have to show the lender that you can make a down payment of at least 3.5%, and your credit score should be 620 or higher. However, some programs allow first-time home buyers to buy a home with a low income, no down payment, and a credit score as low as 500.
A conventional loan usually has stricter requirements than other loans. For example, home buyers often have to make larger down payments. They also have to have higher credit scores and lower debt-to-income ratios. These loans are backed by the private market and not insured by the federal government.
The Federal Housing Administration (FHA) will insure a home loan for a small down payment of 3.5%. If you don’t have outstanding credit, you don’t have to worry about meeting credit score requirements with an FHA-backed loan. Lenders working with the FHA are more flexible with debt-to-income ratio requirements. However, fees are usually higher than conventional loans, and the FHA limits how much they’ll insure.
If you’re a military veteran, you might qualify for a loan through the Department of Veterans Affairs (VA). Rural homeowners can apply for a loan through the U.S. Department of Agriculture (USDA) Rural Housing Service (RHS). These programs don’t have credit score requirements and limit how much they’ll guarantee. The RHS also has an income limit for applicants.
Grants for First-Time Home Buyers
The State of New York Mortgage Association (SONYMA) awards grants to first-time home buyers. The Achieving the Dream program helps first-time home buyers increase their purchasing power and requires a down payment of only 3%. Achieving the Dream will assist buyers with the down payment, if necessary, and you can combine your grant with additional funding for repairs and renovations.
As you can see, several options exist for a first-time home buyer. At Lake and Mountain Realty, we can help you explore the available loans and grants and help you find the right property Contact us today to get started.