Personal Finance
6 Things Every First-Time Homebuyer Needs To Know
Purchasing your first home can be overwhelming, but understanding the process and benefits ahead of time can make a big difference.
Buying a home for the first time can be an overwhelming process involving many steps, from figuring out how much you can afford to securing financing and finding the ideal property. However, with the right guidance and tools, first-time homebuyers can confidently navigate the process.
New American Funding offers a wide range of resources to guide first-time buyers every step of the way. From providing online tools to offering personalized insights from dedicated Loan Officers, New American Funding is dedicated to helping people achieve their homeownership dreams. Here are six things every first-time homebuyer needs to know.
1. Homeownership Has Many Benefits
Homeownership presents numerous financial and personal advantages. There’s the potential for asset appreciation and potentially applicable tax deductions in addition to the potential financial gains and housing stability offered by owning real estate.
Home equity is another crucial aspect of homeownership. You can help increase property value through improvements, reduce debt through regular mortgage payments (or extra principal payments), and choose shorter loan periods. Utilize your home equity as an asset with buying power, either towards purchasing a new home or borrowed against it as a Cash-Out Refinance or a Home Equity Line of Credit.
2. You Don’t Necessarily Need 20% Down
Many loan types have loan-to-value limits, while others do not. If the mortgage loan type you decide on does have loan-to-value limits, you’ll have to make a down payment. However, some loan programs require little to no money down. A bigger down payment means lower monthly payments and potentially lower rates, but a smaller down payment may allow you to buy sooner and have extra cash for home improvements. Some loan programs that do not require a down payment of 20% include Conventional loans, FHA loans, VA loans and USDA loans. Note that in certain cases, you may be required to pay for private mortgage insurance if you put less than 20% down.
3. Credit Score Matters
Your credit score plays a significant role in determining whether you qualify for a home loan and the interest rate you’ll pay. Typically, lenders use the middle score of a tri-merge credit report that combines scores from the three major credit bureaus. They also use the lower score of all the middle scores when there is more than one borrower.
If you want to improve your credit score, first request your credit report and review it for errors or fraud. Other key strategies include paying your bills on time, reducing debt you owe on your credit cards, and avoiding closing credit cards or applying for new lines of credit.
4. Pre-Qualification And Pre-Approval Are Both Important — But Serve Different Purposes
Pre-qualification and pre-approval are two terms often used when obtaining a mortgage. A mortgage company gives a pre-qualification estimate for how much home an individual can afford based on their financial situation. This helps establish financial parameters and narrow down a search for a home in a certain price range.
Pre-approval, on the other hand, is a deeper dive into an individual's credit, income, assets and debt to determine whether they're ready for a mortgage and how much they can afford. The pre-approval process is more rigorous than pre-qualification, as it involves verification by an underwriter, but it can help set you apart from other buyers in bidding situations.
5. Multiple Home Loan Options Exist
There are multiple mortgage types available for a variety of needs, including:
● Conventional Loan. This is a traditional mortgage that is not insured or guaranteed by the government and requires a higher credit score and a larger down payment.
● FHA Loan. The loan type is insured by the Federal Housing Administration and is popular among first-time homebuyers, requiring a smaller down payment and having more lenient credit requirements.
● VA Loan. This type of loan is guaranteed by the Department of Veterans Affairs and offers low or no down payment options and flexible credit requirements for eligible veterans, active-duty personnel and surviving spouses.
Additionally, a 30-year Fixed-Rate mortgage loan and a 15-year Fixed-Rate mortgage loan are typically different in the length of the term and interest rate. A New American Funding Loan Officer can answer any questions you might have about eligibility criteria and help you find the best mortgage option for your needs.
6. First-Time Homebuyers Grants Are Available
First-time homebuyer grants offer financial assistance and can be provided by the federal government, states, cities, and others to make homeownership more affordable. Unlike loans, grants are subsidies that do not need to be repaid, assuming the recipient meets the grantor’s set obligations.
To find first-time home buyer grants, start by contacting local mortgage lenders or the city where you would like to live. Cities may also receive Community Development Block Grants (CDBG), administered by the Department of Housing and Urban Development (HUD), which disperse them through various programs and agencies to address unique community development needs. For a state-wide example, the California Housing Finance Agency provides a list of CalHFA-approved lenders.
New American Funding Offers Support For First-Time Homebuyers
New American Funding offers a variety of programs to help you through your first home buying experience, including:
● NAF Cash* — NAF Cash, an affiliated company of New American Funding, will purchase your dream home upfront with a cash offer, which tends to be stronger in the eyes of sellers and could help you save on the purchase price. Then, you can purchase the home back at the original price (plus a minor convenience fee).
● 5-Year Rate Protection Pledge — The 5-Year Rate Protection Pledge locks in your interest rate at the time of purchase. Should interest rates drop anytime within the five years, you’ll have the option to refinance at a lower rate without any repeat fees.
● Buydown Loan — New American Funding’s Buydown Mortgage can reduce the first-year, second-year and third-year payment rates on a 30-year fixed-rate or 15-year fixed-rate mortgage, with no extra cost to the borrower. The program offers four buydown options to choose from, with the program available on conventional, FHA and VA loans, and may be suitable for borrowers who want to ease into their mortgage payments.
New American Funding understands that every individual has unique needs and circumstances. The company’s dedicated Loan Officers continue to provide personalized guidance within numerous programs offered to their clients to help them navigate the often complex and overwhelming process of purchasing a home.
With this in mind, it’s no wonder that in 2022, New American Funding was recognized as #1 in customer satisfaction among mortgage servicers by the J.D. Power 2022 U.S. Mortgage Servicer Satisfaction Study. The company was able to achieve this prestigious recognition through its dedication to helping every client from every background achieve homeownership.
Contact New American Funding for all your mortgage needs. Contact a Loan Officer to get started today.
*NAF Cash is fulfilled by NAF Cash LLC, an affiliated real estate company of New American Funding that is managed and operated in compliance with applicable legal and regulatory requirements. NAF Cash LLC does not originate loans or issue loan commitments. Terms and Conditions apply. Not available in all states. MI Real Estate Broker #6502431375. 41050 W 11 Mile Rd, Suite 220, Novi, MI, 48375. Phone 844-344-0531.
