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There is a common misconception that FHA loans were created to service first time home buyers. Maybe original they were, but now anyone with a certain credit score can get an FHA loan , and since they are federally serviced, they usually have lower interest rates, though not by much, and much lower down payment requirements. BUT There are programs out there specifically designed to help first time home buyers in this market of higher rates and lower consumer confidence. Lenders are offering amazing products to pull buyers into the market! Here are a few tips and tricks to finding the best loan deal out there for your specific needs.
First and foremost, shop around! Home loan products are just like homes…there are plenty out there for you to choose from! You can choose to use a bank that you have a relationship with, a new bank, or a mortgage broker. Every single one of them will have different programs and qualifications. I always suggest my clients go to a bank and a broker to see what their options are. Brokers work with 20 or so lenders, so even 2 different brokers will have 40 different products. Banks have very specific programs for the clientele that they service so places like credit unions offer bonuses for members but all banks have programs privately funded to reach specific groups of people. I have built a business around relationships and I work really hard to stay up with the times by meeting with those people and talking shop so I can refer my clients to a lender that can meet their needs.
UNDER CONTRACT on this adorable home with my first time home buyers who have been able to secure over $70,000 in grant money to purchase! Their down payment in covered; their closing costs are covered; and a portion will go toward the principle to bring their payment down!
Have a list of options or requirements for the loan officer. What is important to you?
Downpayment – 0% – 20% The more you put down now the less you have to pay interest on over the course of the loan. But if you don’t have the cash there are ways to get mortgage with 0 – 3% down.
Interest Rate – The interest rate is set, but usually as just a starting point. Based on your credit score, the individual lender can make adjustments. One offer now from many lenders are called “buy-downs”, where the lender will buy down the interest rate for the first 1, 2, or 3 years of the loan. There are a huge assortment of these type of offers in the market so ask for them and then make sure you understand it!
Term of the Loan – Traditionally mortgages are 15 and 30 years, but there are some variations now. I recently saw a loan for 40 years that allowed for lower monthly payments. There are also ARM loans out now that are regaining popularity where they offer a lower interest rate for the first 5, 6, 7 years of the loan, but you must refinance before or take the market rate at the end of that term.
Grant Money – This is where it gets interesting and profitable! There are programs out there from the federal government, state government, local governemnts, and even private organization like banks and companys that offer sums of money to use as a gift towards the loan. For example, the state of NC has a $17,500 grant for borrowers that make 80% or less of the average median income and are first time home buyers. If a lender can add that to their own options, you can stack money on top of money to get $50 – $70,000 worth of grants applied to the loan. All of those programs have requirements and specifics such as a finacial literacy class or you have to stay in the home for 7 years so make sure you understand.
Here’s what to do:
- Interview the lender! Ask for these options. Tell them what you’re looking for and see what they have to offer. Don’t just fill out the application first without having a conversation about what you want.
- Ask for a soft pull! Allow them to go through your information and collect real hard numbers on what they can offer. This would mean filling out the application, but a soft pull doesn’t affect your credit score. If they ask you to pay for a credit report, that is likely not a soft pull.
- Stay in touch! Continue to work with the lender on each individual property that you find when you become serious about making an offer. You would hate for the location or type of property to throw you out of any of that money you thought you were going to save.
New Construction isn’t happening so much from the big builders anymore. I am finding more new construction from small local builders with 3 or 4 units at a time. The quality is just as good, if not better, and the offerings are better since most big builders have gone to townhomes instead of single family homes.
A note about new construction…if you are building a home with a builder in a neighborhood or on your own land, STILL do all of these things. Yes, the builders in-house lender will offer a little money back to get your business (usually 4 or 5 thousand), but many lenders will match that or be able to use other programs to beat that. The builder may not choose to use any of those programs since they are already offering an incentive. And then you have a lender that is on your side and not the side of the builder, much like the agent sitting in that model home is employed by the builder and has no allegiance to you.
Your home is the biggest financial decision that you will make, no matter how many times in your life you will make it so it reserves the right to be complicated and researched and poured over. You should have to jump through hoops to borrow hundreds of thousands of dollars with just a signature promising to repay it. Loose lending laws are what caused the financial crash we saw in 2008. It should be hard to make that type of financial decision. BUT IT IS NOT IMPOSSIBLE! A young lady said to me recently, “I’ll never be able to buy a house.” That is not at all true! You can, but you must do the work, whether that means raising your credit score, or researching options available to your type of person, or looking for houses in a particular area or at a particular price point. It shouldn’t be easy! But it also should not be impossible!
