For some helpful advice about financing for First Time Buyers, I reached out to the best, Brandon Wilkinson, with People’s Home Equity.
Here’s what he had to say!
“So you want to be a rap superstar, And live large, A big house, 5 cars…”
My man, Cypress Hill, is certainly onto something! But before you can buy the big house, here are some important tips for first time home buyers. When I was a teacher and bought my first home, I learned a ton! I bought a foreclosed home and used a purchase / renovation loan combination to fix it up. True story, my wife cried the first time she came into the house (those were not happy tears!) But after a little work, we ended up with a house that fit our wants and now have nearly 100K in equity in about 2 years. Who has 2 thumbs and came out looking like a hero? This guy! Anyways, following that life changing venture, I wanted to work in home financing and sought out a company that specializes in home renovation loans. Here are some tips I learned from experience both as a consumer and as a professional.
Applying for a home loan should be one of the first things you do when you are thinking about buying a home. Not only does it give an expert time to review your information and help you create a plan of action, it provides you and the mortgage professional the opportunity to examine your credit report. If there are any hiccups, there will be time to repair them and put you in the best place to buy that perfect home you found. My company, Peoples Home Equity, offers a “Highway to Home” program that will reimburse portions of your credit repair costs once you close on your home!
FHA loans start at 3.5% and Conventional loans start at 3%. The renovation loan I used also required 3.5% down. Down payments can usually be gifted from an appropriate source such as family or a non-profit. When you are serious about a home, you will submit Earnest Money, or “I’m serious” money, in the offer. The Earnest Money will be applied to your down payment requirement further along in the process.
There are plenty of grants out there for first time home buyers. Most have income limits (like you can’t make more than 45K.) Applying for a loan will give the mortgage professional an idea for what’s right for you. Keep in mind, there is no such thing as free money. You will pay for the grant either in the interest rate or the closing costs.
Closing costs include the bank’s fee that pay the underwriters, processors, and the loan officer who helped you, title fees that verify the property doesn’t have any odd connections to past owners or past debts, and the creation of a reserve account, or escrow, for taxes and insurance. They are roughly 5-6K and can be covered by increasing your interest rate.
Many people pay mortgage insurance on their first house. I’m paying it right now. Unless you can come up with 20% as a down payment (20K for every 100K), you will be paying mortgage insurance. It protects the bank in case you can’t pay your mortgage anymore. It’s a bummer but at least you’re paying down your own mortgage instead of somebody else’s. On conventional loans, the mortgage insurance will drop off once you have enough equity in the home. On an FHA loan, the mortgage insurance is permanent until you refinance the loan.