More Ways to Prepare Financially for Your First Home Mortgage
Earlier this year, we already discussed 7 important ways to prepare for your first home mortgage, including checking & repairing your credit score, getting rid of debt, and saving for a downpayment.
However, because getting your first home mortgage can be such a huge investment, we wanted to provide you with 3 additional tips to really make sure you personal finances are as prepared as they can be before you sign on the dotted line(s).
Look for Housing Assistance
Even though we discussed the importance of saving for a down payment in our previous post, the fact of the matter is that it's not always possible for first-time homebuyers.
Luckily there are other options out there that are designed to help you out with the down payment on your first-time homebuyer mortgage.
There are a variety of different programs specifically designed for first home mortgages, as well as some that work even if you're on your second or third mortgage.
Some of these programs only require a small down payment, while others don't require one at all. Here is a quick breakdown of some common loans and their down payment requirements:
- FHA Loans – These loans are backed by the government and only require a 3.5% down payment. You can apply even if you have a lower credit score, as long as it's above 580.
- VA Home Loans – VA loans are also government backed, but they do not require any form of down payment. However, you must be an active-duty member of the military or a veteran and meet all service requirements.
- USDA Rural Development Mortgage – Designed to be used as a first-time homebuyer mortgage for buyers in rural areas, this mortgage doesn't require a downpayment. It does, however, requires a 1% guarantee fee that can be rolled into the loan, plus an annual guarantee fee of 0.35% of the loan balance.
- Conventional Mortgage – Some conventional home mortgages can be acquired for as little as 3% down at the time of purchase.
It is important to check out other down payment assistance options as well. There are many state programs that help with down payments, tax credits, interest discounts, and even closing cost assistance, especially for first-time homebuyers.
Make Sure You Can Afford Your Home
Before you shop for a home, and especially before you sign your first home mortgage, you will want to make sure you'll be able to even afford a monthly payment.
Some loans have limits on how much your monthly mortgage payment can be. FHA loans, for example, won't allow your monthly mortgage payment to be over 31% of your monthly income.
If you are making payments on other debt, keep in mind how that will affect your monthly income before jumping into a first-time homebuyer mortgage payment.
If you've never had a mortgage, though, we understand that it can be hard to know what your monthly payment might be. To help you out, we recommend you use one of the many online mortgage calculators.
Use a Savings Account
Aside from your down payment, you will also want to keep and contribute to a savings account.
When you have additional savings, you appear to be a better candidate to lenders. Additionally, it puts you in a better financial position.
Making sure your personal finances have a bit of a cushion—ideally enough to cover around 3–5 months of home payments—will make sure you're protected if an emergency comes up. It also gives lenders confidence that you're more likely to pay them every month.
A savings fund is also a good idea in case you have any unexpected repairs during the first year in your home. As a general rule, you should plan for your home repairs to cost you around 2.5–3% of your home value each year.
Get Your First Home Mortgage with Financial Confidence
Putting your personal finances in order is the best thing you can do to prepare for a first-time homebuyer mortgage. Then, once you've taken care of your personal finances, you can approach the housing search full of confidence and without stress. Preparation is key, and by following these steps, you'll be well on your way to home ownership.