Let’s face it, applying for and documenting a mortgage application can sometimes be a bit intimidating. There are so many service providers and paperwork involved, many times the paperwork can be a bit overwhelming. This is especially so for those who are buying their very first home. First-time buyers soon find out that applying for a home loan is vastly different than applying for any other type of loan.
The lender is involved, there are real estate agents, home inspections, providing financials…it’s a lot to ask for. And to top it all off, there’s a closing date on the sales contract that must be met, usually within a 30-day time frame. But knowing what to look for in a mortgage program at the outset can help ease these trepidations.
For 2019 first time buyers, one of the first things they want to know is what their monthly payments will be, how much they qualify for and how much money will they need to bring to the closing table. Many times, it’s the “cash to close” number that gets the most attention. After all, there’s a down payment needed plus all the lender and third-party fees needed to provide the necessary services to close the mortgage.
Getting down payment assistance is an avenue available for some first-time buyers who may be having trouble saving up enough money for a down payment and closing costs. A down payment assistance program is designed to help low-to-moderate income buyers finance a home they can afford. Down payment assistance programs have their own internal guidelines and can vary from state to state and even county to county. Yet most such assistance programs come from a sponsored bond program.
Designed to assist first-time buyers as well as help those finance properties in designated areas, such programs provided low-cost, needed funds to cover the needed down payment and closing costs. One such program that fits extremely well with down payment assistance is the FHA loan. The FHA mortgage program allows first-time buyers to access a bond money program and the funds are used to cover the 3.5 percent down payment and associated closing costs. In addition to down payment assistance, FHA loans also accommodate financial gifts from the sellers of the property or family members or qualified non-profit. If buyers are not eligible for a VA loan or the property is not located in a rural area, the FHA program is hard to beat and is the most popular choice for first time buyers in 2020. Read more on FHA loan application.
A VA loan is also an excellent choice for first time buyers for those who qualify. A VA loan does not need a down payment and the borrowers are restricted from paying certain kinds of costs such as an escrow, attorney or underwriting fee. Costs the applicant is allowed to pay for include an appraisal, credit report, title insurance and title-related charges, origination fees and recording fees. The loan also has a borrower funded guarantee should the loan go into default. This guarantee compensates the lender for losses and for most VA loans this fee is 2.3 percent of the loan amount. This “funding fee” is rolled into the final loan amount and is not paid for out of pocket.
USDA loans are another fine choice for first-time buyers seeking a low-cost financing option. This 100% financing program is for homes located in pre-approved rural areas and there are also income limitations placed on the household. Note, most mortgage programs for first time buyers limit the amount of income of the applicants but the USDA limits the income of all occupants 18 years or older. When someone is considering buying a particular property in a rural area, they should first check the USDA map to make sure the property is approved. If it is not, the USDA loan cannot be an option. But if it is, this program is one of the best choice for a low-cost loan available today. USDA loans are offered as a 30 year fixed rate program.
Various down payment assistance programs work well with all three of these government-backed home loans while at the same time providing some very competitive financing. The mortgage process can be a little intimidating but if you start the preapproval process early on and get your pre-approval letter in hand, your approval will be a smooth one.
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