May 13, 2021
Many young Americans find themselves wondering how to do “adult” things, such as pay taxes or buy their first home. The idea of homeownership is among those tasks even some older adults find themselves having difficulty grasping. In light of that, here are some tips on how to get started on the journey to homeownership, specifically regarding understanding the expenses and mortgage selection.
Understanding the Expenses
Before home shopping starts, every first time homebuyer should have an understanding of their personal finances. The expenses add up, so understanding what you should have in capital is important. Utilizing a home affordability calculator can help you get an understanding of what price range you should be looking at.
There are three major costs you should be taking into consideration: the down payment, the closing costs and the move-in expenses. Your down payment requirement will depend on the type of mortgage and lender you choose. For example, a 3% down payment on a $250,000 home is $7,500. Depending on your credit, what is available to you may differ. Using free online calculators can assist you in understanding the math and terminology behind these rates. The closing costs are the fees you will have to pay to finalize your mortgage. These costs typically range from 2-5% of your total loan amount. Lastly, the move-in costs will be for home repairs, upgrades and furnishing. For these costs, be sure to have funds set aside.
Finding the Right Mortgage
When looking for the right mortgage, there are four main categories: conventional mortgages, FHA loans, USDA loans and VA loans. Conventional mortgages are not guaranteed by the government. However, some conventional loans that are targeted at first-time homebuyers only require 3% down. FHA loans are insured by the Federal Housing Administration, and will allow for down payments as low as 3.5%. USDA loans are guaranteed by the United States Department of Agriculture and are for rural homebuyers. These loans usually require no down payment. VA loans are guaranteed by the Department of Veteran Affairs. These loans are for current and verteran military service members. VA loans typically do not require a down payment.
Overall, there is information and resources available for first time homebuyers. The most important things to do before purchasing a home are getting educated, saving money, building your credit and getting to know your local realtors.
Trevon Martin // CIRB Journalism Intern