Tag: first time homebuyer

First-Time Buyers: Facts Young Home Buyers Should Know

January 24, 2022 / Tom Bonetto

joyful young couple dancing after moving in new purchased apartment

As we all know, there’s a good deal of anxiety out there for first time home buyers. Home ownership is a major investment and isn’t something to be taken lightly. This one of the most important financial decisions one can make…and it will have a long term effects in building wealth.

It is never too early to start planning for your financial future, including that first home purchase.

There are some serious benefits to home ownership, to be sure (and you can find out more on that here…).

However, there are a few things that young homebuyers frequently fail to consider when starting the home buying process.

Let’s take a look at these key facts…

The Home Buying Process Begins With Mortgage Pre-Approval

Before you start looking for that dream home, would-be buyers need to have a good understanding of their overall financial position. This means having financial information readily available, such bank, savings, and investment statements.

You might want to check your credit score via a free, online site. While it won’t give you the exact score, it will give you a good idea of what to expect. More on that here…

It’s important to konw that mortgage interest rates tend to be higher with lower credit scores, which can dramatically affect the total costs associated with a new home purchase.

In general, saving for a down payment is sometimes viewed as one of the biggest obstacles for homebuyers, but that does not have to be the case. There are a wide variety of down payment options available – from 0% to 20%+! You can find out more on that here…

Home Ownership Becomes Less Affordable the Longer You Wait

With mortgage rates starting to rise along with home prices appreciating, putting off buying a home now could cost you much more later.

a couple taking a selfie with their new home key

Sam Khater, Chief Economist at Freddie Mac, recently noted, “As the economy progresses and inflation remains elevated, we expect that rates will continually rise in the second half of the year.”

Most experts also forecast interest rates will rise in the months ahead, and even the smallest increase can influence your buying power. So, if you have been on the fence about buying a home, there really is no time like the present to purchase one.

Do you think you might be too late and have missed out on purchasing? Not at all! You can find out more on that here.

Know What You Can Afford and Your Mortgage Options

Some young homebuyers are unsure they can actually afford a mortgage payment for a home that suits their growing needs.

Fortunately, there are a multitude of options! For example, the Federal Housing Administration (FHA) loan for first-time buyers (and a minimum 3.5% down payment). Or a VA loan backed by the Department of Veterans Affairs (if you qualify), along with other home loan programs available to you.

a couple walking through the door while carrying boxes

What’s more, many buyers may be able to afford more home than you think. It’s important to work with a mortgage professional who can help analyze the different programs to find one that suits your individual needs.

Knowing how much home you can afford and understanding the current market when starting the process are musts—and could be just what you need to stop renting and start buying.

Would you like to find out more? Contact me to discuss your current situation and how you might be able to take advantage of today’s real estate market. It would be my pleasure to help you!

Forecast Shows That 2020 Will Be a Big Year for 1st Time Buyers

December 14, 2019 / Tom Bonetto

Next year should be a big one for first-time homebuyers.

I’m linking to an article by Aly J. Yale at The Mortgage Reports that shows that the 1^st time buyer market is getting bigger.

According to new data, up to 9.2 million first-time buyers will hit the market between 2020 and 2022.

A New Frontier for First Timers

Says Yale, “according to a new analysis from credit bureau TransUnion, anywhere from 8.3 million to 9.2 million first-time homebuyers will enter the housing market between 2020 and 2022.

That’s up from just 6.67 million between 2013 to 2015 and 7.64 million between 2016 to 2018.”

Joe Mellman, senior vice president at TransUnion, the next couple of years should mark a turn-around for homebuyers.

“While we’ve recently seen a boom in refi activity, actual homeownership rates are down,” he said. “Challenges have included high home prices, sluggish wage growth, and limited housing inventory, but we may be starting to see daylight as slowing home price appreciation, low unemployment, increased wage growth, and low interest rates are helping affordability. As a result, we are optimistic that first-time homebuyers will contribute more to home ownership than at any time since the start of the Great Recession.”

Survey Results

TransUnion also surveyed potential first-time homebuyers on the perceived challenges that they face.

Interestingly, their results showed that most people are interested in buying a house for more privacy or the opportunity to build wealth.

Only about a quarter said they want to buy a home due to getting married or having children.

Per Yale’s article, “more than a third said they want a more steady job before buying a house. Another third said home prices are just too high.”

Finally, the survey also found that many first-time buyers aren’t aware of their financing options.

“Many of our potential first-time homebuyer respondents don’t seem to be aware of the wide variety of financing options available to them,” Mellman said. “It suggests there’s a large opportunity for lenders to proactively identify consumers who are interested in becoming first-time homebuyers and then educating them on options they may not be aware of.”

Where to go for help

It would be my pleasure to help any first time buyers through the home buying process. Don’t hesitate to reach out to me for more information or to schedule a consultation.

First Time Home Buyers and Student Loan Debt

April 10, 2017 / Tom Bonetto

It’s sometimes more difficult to be a first-time home buyer as compared to an experienced one.

First-time buyers are often younger then the general home-buying population – that typically means less work experience, lower income levels, and less money saved for down payment.

In many cases, it also can mean higher levels of federal student loans and debt.

Source: The Mortgage Reports

Concerns about student loan obligations are among the reasons why first-time home buyers account for a smaller percentage of the housing market as compared to recent years.

The good news, though, is that homeownership and student debt aren’t mutually-exclusive. You can buy a home, get approved for a mortgage loan, and still make good on your student loans.

Income, Assets, Debt, and Credit – they key pieces

As a home buyer, your ability to get approved for a mortgage is based on for things — your down payment on the home, your current credit score, and your income, and your debt position.

Down payment matters because the size of your down payment determines for which mortgage loans you might be eligible.

For example, the VA mortgage and UDSA home loan both allow for 100% financing. Therefore, if you plan to use either of these two programs, it doesn’t matter whether you have a down payment or not.

However, with no down payment, you would not be eligible for an FHA home loan or a conventional one, which require 3.5% down and three percent down, respectively. The borrower’s credit score matters for the same reason.

As far as credit is concerned, all mortgage programs require that buyers meet some minimum credit score requirement. For some programs, minimum credit scores are high. For other programs, minimum credit scores are low.

It’s your monthly income relative to your debt, however, that is arguably the most important trait in your mortgage loan approval. Known as your debt-to-income ratio (DTI), this calculation is believed to be the best predictor of whether you can actually afford to buy.

Student Loans and Mortgage Approvals

A buyer’s debt-to-income ratio is a percentage that shows the amount of your monthly income required to repay your debts.

For example, if you earned $5,000 per month and had a monthly debt obligation of $2,000, your debt-to-income ratio would be 40%.

In general, your DTI must be 43% or less in order to get mortgage-approved for mortgages backed by Fannie Mae and Freddie Mac – but there are multiple exceptions.

For first-time buyers with student loans, though, using every available piece of DTI may be necessary. This is because student loans can eat into your budget and redirect they cash you’d rather be putting toward housing.

Consider that the average college student graduates with monthly debt totaling $300 per month. Add a car payment and a few credit cards, and monthly debt more than doubles to eight hundred dollars per month.

Assuming a monthly income of $4,500 and a maxing out of the allowable debt-to-income ratio, a first-time home buyer with student loans can “afford” a home for around $200,000, assuming a low-downpayment FHA mortgage.

But, student loans don’t have to be a barrier to entry. You have means to reduce your monthly student loan payments, which can help you with your home loan approval.

Student Loan Advice For First-Time Home Buyers

Per Pogol and the Mortgage Reports, one method by which to reduce your monthly student loan obligation is to switch to a graduated repayment plan on your loans.

“A graduated repayment plan is one for which the payment starts low, then rises every two years to meet the rising income of a typical college graduate. With lower monthly payments, your debt-to-income ratio is reduced, which can help you qualify for your home loan.”

Loan consolidation is another way to reduce your monthly student loan obligation.

It’s likely that your student loans are of different amounts, and at different rates of interest. By consolidating your loans, your can lump your principal balances together at, hopefully, a lower interest rate.

You can also request a lengthening of your payback period, known as your “term”.

Pogol states, “by lengthening your term to 15 years or 20 years, you can reduce the amount that you owe each month, which lowers your DTI. This will increase the long-term interest costs of your student loans, but will lower your monthly obligation.”

And, a third option doesn’t relate to student loans at all — but, rather, credit card payments and other monthly debts.

If graduated payments and student loan debt consolidation are not part of your plans, consider reducing your high-balance credit cards or any other debt which carries a high minimum monthly payment.

For example, if you have a credit card which requires a minimum monthly payment of $150, and that’s more than your other credit cards, you can reduce that card’s balance, which will reduce the monthly payment due, which helps to lower your DTI.

Mortgages For Buyers With Student Debt

As a first-time home buyer with student debt, there are a number of mortgage loan programs well-suited for your needs.

Many allow for low-downpayment and 100% financing, as well.

The FHA loan, for example, which is backed by the Federal Housing Administration (FHA), allows for a downpayment of just 3.5 percent for borrowers with a credit score of 580 or higher.

FHA loans allow debt-to-income ratios of up to 43%, but will allow higher debt-to-income ratios on a case-by-case basis .

You can also use the FHA home loan if your credit scores are below 580, but a larger downpayment of ten percent is required.

The Fannie Mae HomeReady mortgage is another loan available to borrowers with student loans. Via HomeReady, buyers can show a debt-to-income of up to 50%, with certain off-setting factors; and a down payment of just three percent is allowed.

The minimum credit score to get approved for a HomeReady™ home loan is 620.

It would be my pleasure to help the first time buyer find the right program that fits their needs ad budget!

The views expressed are my own and do not necessarily reflect those of American Financial Network, Inc.