Homeownership rates among young adults continues to grow as millennials begin to return to the housing market. In fact, the number of millennials buying homes grew the most of any age group in 2017, according to the Census Bureau. And since millenials are mostly first-time home buyers, they are also facing the the abundant amount of paperwork involved in the home financing process.
Fortunately, with advanced preparation and a personalized to-do list, new home buyers can easily stay on top of the financing process. You need to decide how much to spend on your home and which type of mortgage will work best for you, as well as understand the settlement process.
Be Realistic About What You Can Afford
Figure out what you can comfortably pay on a monthly basis. Write down all your monthly expenses including loans, utilities, insurance, credit cards and don’t forget food, clothing and entertainment expenditures.
When determining the monthly payment that’s within your reach, remember that in addition to the monthly principal and interest, you will also be paying into escrows for property taxes, hazard insurance and possibly mortgage insurance or a home owners or condominium association assessment. Many real estate-focused websites have mortgage calculators that are a great way to figure out what your monthly payments would be based on current interest rates and down payment amounts.
Get Objective Advice
Attend a first-time home buying seminar or talk to a housing counselor who does not work for a lender. The U.S. Department of Housing and Urban Development (HUD) offers free housing counseling and seminars. Housing counselors can help you determine if a loan you are looking at is right for you. You can find more information by visiting hud.gov or calling HUD’s interactive voice system at (800) 569-4287.
Pre-Qualify for Your Home Mortgage
To ensure the financing process goes smoothly, buyers should consider pre-qualifying for a mortgage and having a financing commitment in place before shopping for a new home. Buyers also may find that some home builders have arranged favorable financing for their customers or offer financial incentives. Pre-approval also enables you to quickly make an offer when you find a home, and is attractive to sellers who are considering multiple offers.
A lender’s pre-approval would still be subject to a final verification of your credit and a satisfactory appraisal. It’s important not to rush this process and it’s smart to interview several lenders before deciding the right mortgage for your situation.
Qualifying for a mortgage and saving for a downpayment remain primary obstacles to homeownership. To address these issues, Fannie Mae and Freddie Mac offer low-downpayment mortgage programs geared primarily toward the first-time home buyer market. These lenders currently offer mortgages with 3% downpayments, allowing more creditworthy borrowers who lack the funds for a large downpayment to obtain a home mortgage.
Financing Options for Veterans
If you are a military veteran, make sure you explore the special financing options available to you through the VA Home Loan program. While you would still apply for the mortgage through a private lender, the VA guarantees a portion of the loan, which can mean more more favorable terms and lower monthly payments. For more information, visit benefits.va.gov/homeloans.
After taking these steps to get your financing in order, finding your first home will be a much more enjoyable experience.
Looking for a Realtor or Mortgage Loan Officer to help you start the process of purchasing a home? Visit the Asheville Home Builders Association Member Directory to search local professionals.