Why would you keep paying rent when you could buy your own home instead for about the same amount? We run into this question all the time when we speak with potential buyers. They are paying rent on a home that's about equal to what they would pay for a mortgage. The problem is that most people don't know how to stop being a renter and start being a homeowner.
The first thing you should know is what type of loan programs are available to you. The most common type of loan used on a first-time home purchase is the FHA 3.5% down payment loan. This means that you will need to have 3.5% of whatever your total planned purchase price is to cover the down payment. Also, you will need to budget for closing costs. We tell buyers to budget at least another 2.5-3% of the total purchase price for the closing costs as well.
I'm sure you are wondering why is it so much and what, if anything, you can do to minimize this. Let's cover what your closing cost as a buyer will be. This includes escrow, admin & title fees, home inspections, loan origination, and lender fees. However, the majority of this money will be held as tax impounds in your impound account. The lender requires six months' worth of impounds for taxes.
Let's look at some math on a purchase. Say you are looking to buy a $500,000 home. You will need $17,500 for your down payment, and at least $12,500 for your closing costs. That brings the total money required to purchase this $500,000 home to $30,000.
Another great option for our amazing military service members, either active or retired, is the VA Home Loan Program. This program requires a $0 down payment and is based on a points system based on the member's service and disability level. When they retire, they will have different closing costs and qualification levels. Talk to your lender about these programs if you are on active duty or retired from the military.
There are also your typical 5%, 10%, and 20% Fixed Conventional Financing. You can do 10, 15, 20, or 30 years on these programs depending on what your lender offers.
What to do next
We have discussed what you need. Now let's talk about how to get it:
- Set a goal. Be intentional and start saving toward it every month.
- Make it a priority. There are also lots of state, local, and federal down payment assistance programs and grants available, but they are only available as long as the money is in the budget, so start at the beginning of the fiscal year looking for these programs.
- Talk to your lender partner. If you need a referral, we have some great ones for you.
For a free copy of any of our Guarantee Certificates. Or for a free market analysis on your home, please call us at (714) 406-1414.