By Celeste M. Smucker –
A big concern for home buyers is finding the right mortgage program, one they can live with for many years, and this decision is especially important for those who have limited funds for a down payment.
Many move-up buyers have more than enough cash from selling their previous home to put a generous amount down on the next one. On the other hand, most first time buyers and those who made little or nothing from the sale of their house will need to shop for a different kind of mortgage altogether. Fortunately there are a variety of options available and one is sure to be right for you.
First Locate the Best Lender
Step one is to find a lender you want to work with, and if you don’t know someone already, a real estate professional, such as your agent, can help you with referrals.
Your best bet is to work with someone local. Every real estate marketplace is different, and a lender who is familiar with the area where you live—as compared with someone you find online who could be anywhere—has first-hand knowledge that is crucial and can better answer the inevitable questions and challenges that are part of any closing.
Local lenders also have on-going relationships with the myriad of real estate professionals such as agents, appraisers, title companies, attorneys and home inspectors who play an important role in helping you buy a home. Whether you are a first timer or someone who has owned several homes, having a lender who works regularly with all of these parties can help facilitate a stress-free closing that benefits everyone involved in your transaction.
Working with a lender that is close at hand is even more important for first time buyers. Marlo Allen, an agent with Mountain Area Realty who enjoys working with this group, said the home buying process is often overwhelming for first timers in part because of all the decisions they must make along the way.
An understanding lender can increase buyers’ comfort levels and supply them with the information they need to make good decisions starting with their loan. Often they are surprised at the amount of loan they can qualify for, Allen added, though sometimes the payment seems uncomfortably high. The important thing is for them to settle on a payment that fits easily in their budget so that they can be confident about the next big decision, which home to buy. It all starts with having a good relationship with their lender.
Your lender will help you evaluate the loan programs you qualify for says Jay Domenic with Movement Mortgage, and this depends in part on your credit and work history and other factors. Having sufficient funds for your down payment and closing costs is a big part of the puzzle and often confusing for first time buyers.
According to Julia Morris with Fulton Mortgage, many go online and get the idea they need between 10 and 20 percent down in order to purchase a home. Not true she confirmed. She suggests that while the internet can be a good source of preliminary information, it is important to visit reputable sites to get the most accurate information.
One helpful option is the Piedmont Housing Alliance (PHA), a local organization whose mission it is “to create housing opportunities and build community through education, lending and development.” Amongst their many services is counseling first time buyers who need help finding the right loan, repairing their credit or finding funds for their down payment.
Funds for the down payment and closing costs can be a challenge for many buyers, and one option is to tap into 100 percent loan programs (yes there are still a few of them out there) or alternatively, sources of down payment assistance.
An example of a 100 percent option (available to buyers who meet household income limits) is the USDA Rural Housing Services Loan for people buying in rural and some suburban locations such as south of the Interstate or east of Pantops. Buyers who negotiate with sellers to pay some of the closing costs can even buy a home using none of their own funds, Dominic said.
Qualifying first time buyers can also take advantage of the Fulton Mortgage Homebuyer Advantage Plus® Program, Morris said. These buyers can combine seller assistance or down payment programs such as are available through PHA, and move into their new home with little or no money out of pocket. This program comes with no mortgage insurance requirement, which means buyers enjoy lower monthly payments than with other types of financing, as well as substantial savings over the life of the loan.
Still another possibility is the FHA loan that requires just 3.5 percent down. FHA doesn’t make the loan, but insures it and provides the guidelines for buyer qualification. Some additional advantages are that buyers can pay the 3.5 percent with gift funds from approved sources and qualify with a lower credit score than with some other loans. Check with your lender for details on this and other programs.
Often loan programs for first time buyers require home buyer education. This is available through PHA, which also administers a number of down payment and closing cost assistance programs. If you have credit issues preventing you from qualifying for a loan, PHA counselors can help. Contact them for information and to make an appointment.
Obtaining the right mortgage is critical when buying a home. Consult your local lender for assistance in finding the best program for you. You may be moving into your new home sooner than you think.
Celeste Smucker is a writer and blogger who lives near Charlottesville.