First Time Home Buyers
Where Do I Begin?
Nobody Sells Homes Like Lane Thrush! Lane's team and professional staff are prepared to meet your real estate needs for buying or building your new home in the greater Chambersburg, Shippensburg, Greencastle, and Waynesboro, PA areas. As your buyer’s representative, we will always keep your best interest in mind. Meeting your homebuying needs is our primary concern.
Getting Your Finances In Order--Saving For Your Down Payment
As a first-time homebuyer, your biggest challenge might be saving enough money for your down payment and closing costs. To respond to the growing needs of first-time homebuyers, lenders now offer many financing options. It is now possible to find mortgages that allow buyers to finance as much as 100% of the purchase price. In other words, you may be able to buy your new home with no down payment at all.
This is great news for cash-strapped homebuyers; however, there are TRADE OFFS when it comes to financing your new home. Typically the lower the down payment, the higher the interest rate for your loan. Because of the risk associated with lower down payment financing options, lenders understand there is a chance you'll walk away from your loan if you have no equity in your home. Plus, you may have to buy private mortgage insurance, which covers the bank if you default on your loan. Private mortgage insurance usually adds a premium on top of your interest rate. So on a $150,000 loan you could end up paying an extra $112 to $150 a month.
Even when you factor in the added cost, there are still plenty of reasons to purchase your own home. Besides the intangible benefits, homeownership allows you to build equity, and you will receive the single largest tax break available to most consumers. To help you with your decision--whether you are better off renting or buying--take a look at our rent vs. buy calculator.
Once you have crunched your numbers, then you can decide if it's the right time to buy your piece of the American Dream. Take a look at these smart strategies for first-time homebuyers.
Pay Off Your Debt
It's not uncommon for home-buyers-to-be to focus on saving as much money as possible for a down payment instead of paying off other debts. A better approach is to use your extra cash to eliminate credit card and other high-interest consumer debt even if that means you will be putting less money down on your first home.
Why you ask? First, credit card debt is very expensive and limits your ability to save. The average interest rate on credit cards now stands at about 14%, more than double the 6.33% national average for a 30-year fixed-rate mortgage. Second, credit card debt will limit how much you can borrow. Lenders adhere to certain debt-to-income ratios and won't allow your total monthly debt service, which includes payments for credit cards, student loans, and car loans, as well as homeowner's insurance, property taxes, and a mortgage to exceed 40% of your gross income. In addition, interest you pay on these loans is not tax deductable, but interest you pay on a loan secured by real estate almost always is.
How Much Can You Afford?
Here is your answer, and it is comprised of two main components: how much you can borrow and how much of a down payment you can muster. As a rule of thumb, your annual mortgage payment, taxes, and homeowner's insurance shouldn't exceed 28% of your gross income. Now determine how much cash you have for your down payment, leaving yourself enough left over to pay for closing costs, which can add up to 3% to 5% of your new home's purchase price. We recommend you have something extra for emergency repairs once you move into your new home. REMEMBER, AS A NEW HOME OWNER YOU WON’T BE ABLE TO CALL THE LANDLORD FOR THIS ANYMORE. ON THE BRIGHTER SIDE, YOU WILL BEGIN TO BUILD EQUITY FOR YOURSELF INSTEAD OF PAYING THE LANDLORDS MORTGAGE.
Still having trouble figuring it all out? We would be happy to meet with you to perform an analysis to determine how much home you qualify to purchase. Contact us now to schedule your appointment.
Types of Loans
Once we have determined how much down payment is right for you, we will be able to determine your price range. Then you're ready to start shopping around for the type of loan that’s right for you. As we stated earlier, a homebuyer with a steady job and good credit may be able to purchase their home with no down payment at all. These loans are available and more reasonably priced through Fannie Mae. Fannie Mae is a quasi-government-sponsored agency that purchases mortgages up to $417,000 on the secondary market. This organization absorbs the original lenders' financial risk. Because interest rates are constantly changing, such a low down-payment mortgage will typically run one-quarter to one-half percent higher than a conventional loan.
More money down will offer you more financing options. For example, Fannie Mae's new "start-up mortgage" allows borrowers who can put down 5% to qualify for a larger loan on a smaller salary than those who put no money down. We will help you locate a Fannie Mae-approved lender to take advantage of this program. Contact us today to explore this option.
Most private lenders are also offering their own loan programs to service first-time homebuyers' needs. Many lenders today offer programs for buyers with the option of not paying mortgage insurance. Instead of charging for mortgage insurance, they build the cost into the interest rate, making it tax-deductible (mortgage insurance premiums are often not tax deductible). There are also combination loans that permit you to obtain two loans. One at 80% of the purchase price and a second mortgage for the additional 20%. The combination of these two loans provide for 100% financing and do not require mortgage insurance!
Do you have a less than perfect credit rating? Fortunately Fannie Mae offers an "expanded approval" program to consumers with slightly blemished credit. Now these buyers can also qualify for mortgages at competitive rates that are as much as two percentage points lower than alternative financing.
Even if your credit's still not good enough for one of Fannie Mae's loans, you may qualify for a loan insured by FHA. FHA refers to The Federal Housing Authority who offers government-insured loans issued with flexible credit criteria. FHA loans permit you to put little money down, and you can wrap your closing costs and fees into the mortgage if your purchase contract is structured properly. We are experts at this! FHA interest rates are typically less than a quarter of a percent higher than those in the conventional market. To secure a government-insured FHA loan, we will make sure we locate a HUD-approved lender or a mortgage broker to help you through the process.
There's no income limit to qualify for an FHA-insured loan. However, since these loans are geared toward helping first-time homebuyers and low- to moderate-income families, there's a limit to the loan amount. The amount varies from region to region. To check this area’s loan amount maximum, please feel free to contact us.
Down-Payment Assistance Programs
Each year HUD gives states and municipalities money to distribute to low- and moderate-income families for their home purchasing needs. It is possible you may qualify for a $3,000 to $5,000 grant (or in some cases a loan that's forgiven if you stay in the home for at least three years) to put toward their down payment or closing costs. To qualify a home buyer can earn no more than 80% of a regions median income. You can contact us to find out more.
Ready to schedule your homebuyer analysis with a member of the Lane Thrush Team?
We are real estate professionals that are dedicated to helping the people of our community achieve their goal of homeownership. Please feel free to contact us today for a friendly exchange, tailored to your personal needs. We will empower you to achieve your home ownership dreams.