Tips for Financing Your First House

Financing your first home is both exhilarating and stressful. There are several factors that go into choosing the most appropriate option. While a wide array of finance options exists for first-time homebuyers, investing enough time to research the basics of property financing will save you a significant amount of money and time, allowing you to close the deal with confidence.

Furthermore, understanding the local market and whether it offers incentives to lenders will mean more financial perks for you. Take a close look at your finances to ensure you are getting the mortgage that aligns with your needs. Luckily, there are some simple strategies and assistance programs that can help.

Monitor and Build Your Credit

Much like personal loans, your mortgage interest rates and eligibility will partially be based on your credit score. Additional consideration includes a debt-to-income (DTI) ratio of around 43 percent and a history of paying your bills on time.

So, it is a good time to check your credit score and possibly invest a few months in improving your rating. There are several online platforms that can check your credit score for free.

One fast way to improve your score is to pay down credit card balances and stop using them two months before applying for a mortgage. You should also not apply for credit, such as a car loan or a new credit card, until after you close on your new home.

While lenders generally prefer limiting housing expenses (principal, interest, taxes, and homeowner’s insurance) to nearly 30 percent of the borrower’s monthly gross income, this figure can vary depending on your local real estate market.

Apply for an FHA Loan

The Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development, offers numerous home loan options ideal for first-time homebuyers. These mortgages tend to be easier to qualify for with lower interest rates and deposit requirements. The down payment is as low as 3.5 percent.

Nonetheless, with an FHA loan, you will pay a mortgage insurance premium, which will be rolled into your mortgage payments. Consider using an FHA Loan Calculator to forecast your loan details.

Save for Your Down Payment

Alongside improving your credit score, you should also start saving money to make your down payment and turn buying your first home into a reality. Although some mortgages and government programs eliminate the need for an immediate down payment, generally, it’s a good idea to present a substantial deposit, typically around 3.5 percent to 20 percent of the purchase price.

The more robust your deposit, the more likely you are to close on your ideal housing choice.  Furthermore, a higher down payment can reduce your total monthly payments.

As you save money for your down payment, avoid the temptation to invest in something else that gives you higher yields. While the greater return on your money might be tempting, you shouldn’t forget the greater risk of not having your money available when you are ready to purchase a house. A savings account is often the ideal option for attractive interest growth and low minimum deposits.

Down Payment and Closing Assistance

If you’re in a pinch for deposit and closing cost funds, there are assistance programs that can help. Down Payment Assistance (DPA) offers grants or low-interest loans to help homebuyers significantly reduce the amount they need to save for a down payment. Over 2,000 such programs are available nationwide.

Similarly, DPA programs state that their funds can be used for closing costs. Check your local down payment assistance programs to see if closing cost grants are included. Look to see if you may apply for tax credits when the time comes.

HUD Programs

While the U.S. Department of Housing and Urban Development doesn’t pay grants directly to individuals, it does offer several programs to first-time homebuyers. A few of these programs include the Good Neighbor Program, an initiative designed to reward certain workers, like police, firefighters, and teachers, with housing funds to continue engaging with their communities. The FHA and its loan programs are also part of HUD.

The Efforts are Worth It

Purchasing your first home is exciting, but there are many things to consider before you start looking. Additionally, the costs included can be confusing. Begin by getting all your finances in order and use online tools to compare mortgage rates and manage your credit score. Fortunately, various federal and state programs and simple strategies can best position you to score the house of your dreams.

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