Median home prices are rising, and available inventory is shrinking, particularly for first-time home buyers looking for starter homes. This is a challenging situation for people who've never bought a house before. If you can hold off until next year, the market may improve, but interest rates could be higher by that time. Economically, right now is a great time to buy.
There are some basic concepts you'll need to understand if you're a first-time home buyer. Arm yourself with the knowledge in this article and be prepared to learn more as you go through the process. If anything is confusing or seems a bit shady, ask lots of questions and don't sign anything until all those questions have been answered.
Your FICO Score Affects Your Mortgage Rate
Your FICO score is one of the most important factors that lenders consider when approving you for a mortgage and setting the interest rate. You don't need "good" or "excellent" credit to get approved for a mortgage, but higher scores will get you better interest rates. Work on improving your score by paying off credit card debt before attempting to buy a house.
You May Be Eligible for an FHA Loan
First-time home buyers may be eligible for FHA loans, which are federally backed mortgages that you can qualify for with a credit score as low as 500. If you're between 500 and 580, you'll need 10% of the home value in cash for a down payment. If your score is over 580, the required down payment is just 3.5%. Ask your lender about FHA requirements and programs.
Starter Home Inventory Is Low Right Now
Starter home inventory is limited right now because mortgage interest rates are historically low. Be prepared to pay above the asking price if you're in this market. Starter homes are defined by Freddie Mac as any home with less than 1,400 square feet. They are most popular with singles and young couples buying their first home.
Insurance Requirements: PMI, UFMI, and MIP
Unless you're putting 20% down on a conventional mortgage, you will be required to pay mortgage insurance. With conventional mortgages, it's called private mortgage insurance (PMI), which you'll need to pay until 20% of the loan has been paid off.
With FHA loans, there's an up-front mortgage insurance (UFMI) payment of 1.75% and mortgage insurance premiums (MIP) of 0.45% to 1.05% of the total mortgage until 22% of the loan has been paid. Clarify the numbers with your lender, as these are subject to change.
Ask About 80-10-10 Mortgages
Paying mortgage insurance, either PMI or MIP, can cost you several hundred extra dollars per month. Our last tip for you today is to ask about 80-10-10 mortgages. With this option, you're taking out a first (80%) and second (10%) mortgage at the same time and putting 10% down in cash. The 10 and 10 covers the 20% you need to get over the insurance cap.
Sources
Press Release Service by Newswire.com
Original Source: Credello: What One Should Know About Buying a First Home in the Current Housing Market
