For a number of possible reasons and scenarios, there comes a time in most adult’s lives when we say to ourselves, “I think it’s time to become a homeowner.” Whether it is landing the first real career job, getting married, starting a family, or paying off a large debt, the decision to buy your first house is very exciting. Benefits of homeownership include tax deductions, building equity, and the pride that comes with owning your own home.
By taking a few steps early on in the process to prepare, ideally it will go smoothly from start to finish. Before running out to look at all the homes that catch your eye, I always recommend having a fairly accurate idea of the price range you will be looking in to avoid possible disappointment. Your credit score is one of the instrumental factors in determining what type of loan you will be eligible for and even what the interest rate may be. Checking your own credit report for errors is important, and giving yourself time to repair any potential credit damage will result in better results when the time comes to actually obtain a loan. Finally, meeting with a lender to obtain a preapproval letter (which is a step above a prequalification letter) gives some peace of mind that the home you make an offer on is at a price that is comfortable for your budget.
There are a number of loan programs that exist which can help first-time homebuyers more readily enter the housing market. The traditional view of saving a 20% down payment to obtain a conventional 30 year mortgage is certainly not the only route to take anymore. There are several options available that allow for fewer out-of-pocket expenses in the form of a lower down payment as well as closing cost assistance.
FHA (Federal Housing Administration) loans are a good option for borrowers who may have less than stellar credit history yet can still put a small amount down (as little as 3.5%). FHA provides a guarantee on a portion of the loan so lenders have a different set of rules to follow for qualification purposes. Borrowers will be paying mortgage insurance on this loan product, but the percentage amount has recently been reduced.
USDA (U.S. Department of Agriculture) loans, commonly called Rural Development or RD loans, offer 100% financing to borrowers due to mortgage guarantees to the lenders. Like FHA, they also require mortgage insurance. There are limitations on the amount of income the borrower(s) can make as well as location and criteria for the property. If everything aligns, these loans can be a huge boon to some potential homebuyers.
Conventional loans via Fannie Mae and Freddie Mac can also offer some programs that require very little money down – as low as 3% for first-time buyers. Borrowers will have to pay private mortgage insurance until they get to 20% equity in the home. These loans do require higher credit scores and a stronger overall financial picture.
VA (Veterans Affairs) loans are available for eligible members of the military, veterans, spouses and some defense-related employees. If you meet those criteria, it is worth discussing with a lender.
HRDC (Human Resource Development Council) offers homebuyer education in the form of an eight hour, comprehensive course with the intent of giving first-time buyers the information and answers they will need throughout the process of buying a home. The class is not only a great idea for those looking to become more real estate savvy, but it is also mandatory for certain loan types.
Due to the fact there is so much to consider when it comes to appropriate loan programs, it is suggested that buyers shop around to find a lender that can provide the best solution for their individual financial situation.
Once you are finally ready to start house hunting, having the preliminary leg work out of the way will allow you to refine how your ”must have” features become more or less important while matching with your budget. In today’s competitive market, having as many steps completed with your lender prior to identifying your dream home becomes even more imperative as the best homes in each price range will sell quickly, so buyers need to be poised to jump. Bozeman condos and townhomes start around the $200,000 mark whereas a typical single-family home in that range is closer to $300,000. Beginning prices in Belgrade fall closer to $150,000 for attached housing and $200,000 for single-family homes. Over in Livingston, there is very little in the way of a condo/ townhome market, and single-family homes begin near $175,000. These numbers are certainly generalizations and shift along with the supply and demand.
I thought it would be a good idea to get some feedback from a local lender’s perspective. Amanda Torgerson, Loan Officer (NMLS #1083564) with Opportunity Bank, offered two pieces of advice to would-be homebuyers. First, it is easier to sit down in person or speak over the phone with your lender right away so that they can explain which loan programs you are eligible for and furthermore what type of homes will be eligible for those programs. For instance, if you are going to use an FHA loan, many condos won’t be FHA approved, so viewing them would not be advised. Secondly, if you plan to make a purchase within the upcoming several months, consistency in your financial picture is very important. Changing jobs, even to take a higher paying job, can greatly affect your credit, as well as making major purchases such as a new car or recreational vehicle.
In a seller’s market such as ours currently, I recommend putting in a highest and best offer to avoid feeling discouraged if the offer is not accepted. It can be somewhat deflating to lose out on a suitable home simply to try to get a bargain. Taking the leap from renting to owning is possibly one of the most fulfilling adventures you can embark upon, so enjoy each step of the process.