Real Estate Basics: Getting Started With Financing
Thinking about how you can buy your first home? Regardless of price, buying real estate takes a lump of money up front, but it may not be as much as you think.
Things to consider:
- How much of a down payment will you need?
- How do interest rates, taxes, and insurance factor in?
- What kind of monthly payment will that translate into?
- How much are closing costs?
The first thing to do (besides saving money) is talk to a mortgage consultant. Most people do not buy homes (especially their first home) with cash, they take out a mortgage loan from a bank. A good mortgage person can talk you through the numbers so you’ll know the financial goals you need to reach and will be able to create scenarios that give you an idea of the real world costs to buy a house, tailored for your situation. Gather your tax returns and personal documentation because they will look at your income, credit history, and any other assets or debts you may have to confirm that your credit is worthy of a loan. If your past credit history isn’t great you may need time to build it up again, but it can be done.
Depending on your credit history, the type of dwelling and your reason for buying, your down payment could be as low as 3.5% (or possibly even less) of the purchase price using an FHA loan. The usual minimum down payment for a conventional loan could be 5%, 10%, 20% or more. If you’re a first-time home buyer, there may be special programs and incentives available to help you. It never hurts to ask!
One thing that many people don’t realize is having a lender that is local and communicates well is important. The person you choose can really make a difference if there are any hiccups in the funding process during escrow, and it’s great to have someone who can answer your questions each step of the way. For this reason I do not recommend getting preapproved via online or out of state banks. Ask me for some recommendations (I’ve got em!), or ask friends and family if they have a loan person to recommend. It’s always better to get a personal referral.
Your first home might be in a different part of town than you expected, and it might need fixing up, but many people can work towards home ownership if it’s a priority. You should always talk to a financial advisor about your specific situation, but buying your own home can lead to tax benefits and “paying yourself rent” can potentially be a real financial gain in the long run.
A personal note: I grew up thinking I would never be able to afford to own a home, so I never tried to save for one. Then the 2008 downturn happened and my partner and I realized if we quickly saved as much as we could and borrowed a bit from family and friends, we might be able to get a foothold and buy our first house. So that’s what we did. It took a while and it wasn’t easy, but through a lot of effort and a little luck it happened. If you’re interested in owning your own home, talk to me. It might be more attainable than you think.