What Every First-Time Home Buyer Should Know
Money Girl answers 6 common questions from first-time home buyers. How to know when you should buy your first home and how much money you will need.
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Question #4: What financial programs are available for first-time home buyers?
The U.S. Department of Housing and Urban Development (HUD) and one of its agencies, called the Federal Housing Administration (FHA), work to make buying a home affordable for more Americans.
With an FHA loan, you don’t need excellent credit or a high down payment to qualify.
The FHA has helped more than 30 million people become homeowners since 1934. They don’t actually make loans, but insure them so if a buyer doesn’t make payments, the lender will get their money. This encourages lenders to give mortgages to hopeful home buyers who might not qualify otherwise.
With an FHA loan, you don’t need excellent credit or a high down payment to qualify. The loan limits for a single family home vary throughout the country, ranging from $115,200 to $208,800.
Ask your lender for details about FHA programs for first-time buyers. Or contact a HUD housing counselor for free or low-cost advice about your options.
Question #5: How much house can I afford?
Check out the How Much House Can You Afford Calculator at bankrate.com to see what price works for your budget. If what you can afford is significantly less than the average cost of homes in your area, then you might need to wait until you can pay a larger down payment.
Remember that you’ll have other costs every month, in addition to the mortgage payment. These are called the PITI, which stands for principal, interest, taxes, and insurance:
- Principal – is the repayment of the amount you borrowed.
- Mortgage Interest – is the payment to the lender for the use of the money you borrowed.
- Home insurance – protects you and the lender against damage from many (but not all) natural disasters, theft, vandalism, and legal hazards.
- Property taxes – are annual city and county assessments
Taxes and insurance can be rolled into your mortgage payment and then paid by your lender on your behalf. Additionally, you’ll have to pay utilities, maintenance, and perhaps homeowner association dues if your home is in a gated community.
Question #6: What should I expect at the home closing?
A home closing is where all your fees and costs of buying the property are finalized on the Settlement Statement, Form HUD-1. It’s your last opportunity to make necessary changes to your paperwork. So don’t hesitate to ask questions about charges that you don’t understand.
The closing agent will have a stack of documents for you and the seller to sign. You can handle it in person or remotely through the mail. The mortgage and deed will be recorded in the county records registry, you’ll receive a copy of everything (including the keys), and then you’ll be an official homeowner.
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