Buying your first home is a huge step – financially and emotionally. The ups and downs in the real estate market and the country’s economy haven’t helped first time home buyers. There has been a lot of uncertainty in the world of real estate since the crash of 2008 but over the past year or so, things have really been picking up and home list prices are on the rise again.
Rising house prices and a number of government initiatives designed to stabilize the country’s housing market and help get first time homebuyers onto the property ladder makes now a good time to buy your first home. As a first time home buyer what are your options when it comes to loan programs? Read on to hear my take on what’s available.
The Federal Housing Administration (FHA) is part of the U.S. Department of Housing and Urban Development and has been helping people to buy their homes since 1934. The FHA insures your mortgage loan which in turn gives your lender extra peace of mind allowing you access to better rates and deals such as low down payments, low closing costs and easy credit qualifying.
You can still shop around for the best mortgage, but by looking for a mortgage that is FHA-backed you will have a better chance of getting pre-approved. FHA loans are especially beneficial if you have limited funds for your down payment and/or you don’t have an established credit history. The exact loans offered with FHA-backed mortgages will vary with the different lenders, but you should still have the option to choose a fixed-rate or an adjustable rate mortgage, depending on what’s best for you. If you’re unsure what fixed rate and adjustable rate mortgage are, I’ll give more details on these below.
California Specific Homeownership Assistance
If you do need help with securing a mortgage and would like to look at some different options to FHA-backed loans, take a look at the California Housing Finance Agency. They have a number of options such as the California Homebuyer’s Downpayment Assistance Program (CHDAP) – this second or subordinate loan provides 3% of the purchase price or appraised value (whichever is less) to be used for your down payment or closing costs.
There is also the Extra Credit Teacher Home Purchase Program (ECTP) which is available for eligible teachers and employees working on high priority schools in California. This deferred-payment junior loan can be used to help with your down payment.
CalHFA does also offer conventional mortgages that are insured through private mortgage insurance as opposed to the FHA and these may be combined with their Zero Interest Program (ZIP) for down payment assistance.
Your Different Mortgage Options
As I mentioned above, I feel it’s also useful to give you a quick summary of the type of mortgages you could be considering. As a first time homebuyer I know it can be daunting figuring out what all the different terms are, but hopefully this will help:
Conventional Fixed-Rate Mortgages
These usually offer the best fixed rates because they are fixed for a specified amount of time. This makes it easier to plan ahead because you know exactly what you will be paying month to month. You will usually need at least a 5% down payment for these mortgages and an established credit history.
Adjustable-Rate Mortgages (ARMs)
These can also offer low interest rates for a fixed period usually of between 3 and 10 years and are good if you think you may be moving again within the next few years. A 5% down payment will be required.
As a first time homebuyer you’re unlikely to be looking at a Jumbo Mortgage as these apply to more expensive homes and you will need to have at least a 20% down payment.