"First Time Home Buyers"
By Johnny Wilson
Buying your first home can be one of the most exciting (and stressful) moments of your life. It is not unusual for some to think that being a homeowner will always be just a daydream – they discourage themselves with common thoughts like: “I can’t afford a mortgage” or “it will take me decades to save up enough for a down payment” or “my credit score isn’t that great.” Well this is America and anything is possible. Most of the time, you daydreamers are simply not informed of the different possibilities and financial assistance programs that are available on all levels – federal, state, and county. It just takes someone to point you in the right direction, a little time, and some investigative work.
Buying your first home is a big investment and a lengthy process, but with the right guidance, some basic education, and understanding what is required, taking the proper steps towards being a homeowner is not as daunting of a task as most think. It just takes some effort and a little patience. Just ask any homeowner –they were once daydreamers too!
This section is meant to give you a little education about the home buying process, what it takes to qualify for a loan, some examples of financial assistance programs, and what to expect when purchasing your first home. Enjoy!
II. THE BASICS – QUALIFYING FOR A LOAN
“So… where do I begin?”
Before you get to the fun part of house shopping, it is important to know what you can afford and how much of a loan you qualify for. You can use any mortgage calculator to figure out your monthly mortgage payments (there is one on this website in the “FOR BUYERS” section.) The best place to start is to get a Pre-Qualification Letter from a lender. There is no cost to obtain a pre-qualification letter, you just need to gather some paperwork and make a few of phone calls. It’s always a good idea to try out different lenders as their rates and terms vary.
“What kind of paperwork do I need to provide in order to get pre-qualified?”
All lenders and applicants differ, but most likely they will be asking for your:
- W-2 forms – or business tax return forms if you’re self-employed.
- Personal tax returns for the last 2-3 years.
- Most recent pay stubs.
- Credit score.
- Amount you have for a down payment.
- Total monthly payments going to debt (credit cards, car payments, etc.)
- Bank statements.
Once you gather all your paperwork and submit it to the lenders, you will have a good idea of what kind of loans you can qualify for and how much you can spend on your first home.
“I’m not exactly sure what my credit score is, but I’m sure it isn’t that great.”
The three credit bureaus (Equifax, Experian, and TransUnion) are required to give you a free credit report once a year. You can request your free annual credit report at www.annualcreditreport.com
“I pay cash for everything and have no credit… is that ok?”
Unfortunately, you do need credit to buy a house… but establishing credit is not that hard. Simply get a credit card, make a couple of purchases, and pay them off right away. There you go: instant good credit.
“I got my credit report back. Just like I thought, my credit score isn’t that great.”
First off, no need to panic. You can turn your credit from ‘poor’ to ‘great’ in a matter of months. There are plenty of companies that specialize in credit repair (see the “Assistance Programs – Your Allies” section below.) They will analyze the reasons for your poor credit and tell you the proper steps to repair it. The better credit you have, the better the interest rates you will get, and the more money you will save. It can take up to six months (or less) to get your credit score up to where you want it to be, so get started on this right away! This is your first step on becoming a homeowner.
“I heard you need 20% of the purchase price in cash as a down payment... I don’t have that kind of money and it will take me years to save up that much.”
It’s a good thing that there are numerous type of loans that are designed to help First Time Home Buyers with little or no down payment. For example, an FHA loan only requires 3.5% as a down payment. Some programs only require 1%. And if you are a veteran of the armed forces or live in a rural area, VA loans and USDA loans require no down payment. Plus, there are literally hundreds of down payment assistance programs out there to help you on federal, state, and county levels. There are also programs that help you based specifically on your profession or circumstance– are you a teacher? police officer? firefighter? Native American? Living in a rural area? Have low income? If so you automatically qualify for special loan types and programs designed to help you on purchasing your first home. See the “Assistance Programs – Your Allies” section below.
III. Assistance Programs – Your Allies
It would take me hours to list the hundreds of loan types, assistance programs, and grants available to help you in the purchase of your first home, so I will list just a few examples of assistance programs – your allies.
- FHA loan: Federally sponsored and designed for First Time Home Buyers, this is a common loan for those purchasing their first home. A credit score of 580 or higher could qualify you for a low down payment of 3.5% - it is required for you to be living in the home.
- USDA loan: The U.S. Department of Agriculture has a home buyer assistance program that focuses on those living in rural areas with low income. If eligible, there may be no down payment required. You don’t need to be purchasing a farm or run an agriculture business to qualify, but you do need to live in a rural area (i.e. Idyllwild and the surrounding mountain communities.)
- VA loan: Sponsored by the U.S. Department of Veteran Affairs, this loan is specific to service members, veterans, and surviving spouses. There is no down payment required and there isn’t a minimum credit score needed to be eligible.
- CalHFA loan: On the state level, the California Housing Finance Agency has special programs designed to help those with low or moderate income purchase their first home.
- Extra Credit Teacher Program: ECTP is a first time home buyer program that provides assistance in the form of down payment or closing cost money for all teachers, support staff, administrators, bus drivers, food service, and janitors.
- Riverside County EDA grant: Riverside County’s Economic Development Agency provides up to 20% of the purchase price for down payment assistance (not to exceed $75,000) for those with low income. No minimum credit required.
- The list goes on and on…
These are just some of the examples out of the hundreds of the programs available to help you purchase your first home. If you’d like to know more and see what’s out there, just contact me for help!
PS: Coming soon in the “First Time Home Buyers” section:
- A First Time Home Buyer’s “Checklist for Purchasing Your First Home”
- An illustrated timeline “From Pre-Qualifying to Closing Your First Escrow.”
- A full list of available Federal, State, and County Assistance Programs
- Tips, and Mistakes to Avoid for First Time Home Buyers