Are you thinking of buying your first home? Congratulations! Purchasing a home is one of the biggest, most important investments you will make. As a first-time home buyer, you should know that there are several first time home buyer mortgage programs available to help you get you into a house at mortgage terms that you can afford. Before you begin your search for your first home be sure you understand these programs and work with your mortgage broker to take advantage of them!
The first step in buying a home is understanding what you can afford.
You will need to gather documents to answer some questions:
- What is your gross (pre-tax) income?
- How much do you spend each month?
- Do you have any credit card debt?
- How much do you have in savings?
- What is your credit score?
Most lenders suggest that you spend no more than 28% of your monthly gross income on your mortgage payment, and around 36% of your gross monthly income on your mortgage and other debt.
The biggest resource for first time home buyers is the Federal Housing Administration (FHA). They work by providing private mortgage lenders with guarantees (insurance) against the loan that you take out with them. They help home ownership become a reality for many who do not have perfect credit or don’t have the finances available to afford the large up-front payment sometimes required to buy a home. Your down payment can be as low as 3.5% of the purchase price. FHA has financing available for mobile homes and factory-built homes as well.
FHA Mortgage Loans
The process of applying for an FHA loan is pretty much the same as applying for a conventional mortgage. You will need to provide verified proof of your income over the past three years. Social security, alimony, rent paid by other family members and such qualify as income under the FHA program. Short-term debt does not count against you (short-term is defined as being able to be paid off in less than 10 months). Remember, just because the FHA relaxes the restrictions doesn’t mean you should buy a home that you have to struggle to afford each month.
The FHA will help you get started on owning the home of your dreams – but remember, it is a cooperative process. Use this checklist (link to FHA checklist) to determine the type of home you need.
There is a wealth of information available about the FHA programs. Your mortgage broker should be able to provide you with extensive information and guide you through the process. You can also read up on it yourself at www.fha.gov.
In addition to the FHA, there are state and local programs available to you to help offset some of the costs of purchasing your first home. Check with your mortgage broker to find what programs exist.