Buying your first home can be exciting and exciting, but it can also be stressful.
Millennials, in particular, face unique challenges that previous generations did not. The concept of a first-time home buyer used to mean buying a house that was inferior to your ideal home and then gradually looking for a property to live in for the long haul. But this is no longer the norm, especially among millennials living in New York. The first property they may buy in their life may be the one they live in for a long time.
The goal this time around is to make first-time homebuyers feel confident about the home they’re buying. However, 63% of millennial homebuyers regret their first home purchase. The most common reason is that many buyers do not understand the cost of buying and maintaining a property. Most homebuyers work with a home lender to get their loan, so the key is to be prepared, avoid common mistakes first-time homebuyers make and understand your best home loan options.
Questions to Consider When Buying a Home
The biggest cost associated with a home is a home loan. As a first-time homebuyer, there are a few common home loan questions to consider:
Do I have all my financial information available?
To qualify for a home loan, you will need to show your bank or home loan advisor your financial information to prove you can afford to repay the loan. Make sure you have the relevant documents (such as W-2s, most recent pay stubs, tax returns for the past two years, bank statements, investment statements, etc.) ready as required by the lender.
Do I have a good credit score or credit history?
Having a good credit score and record will help you get a better interest rate in addition to qualifying for a home loan. An analysis of one million Credit Karma members found that the average first-time homebuyer had a credit score between. (Maximum score is 850.) If you do not have a good credit score, you may need to provide proof of other assets, such as bank deposits, listed stocks, or a superannuation account, to obtain a loan.
Can I afford a home loan?
Use an online home loan calculator to determine how much you can pay on your home each month. Remember to factor in both income and debt, including property taxes and disaster insurance.
How much is the minimum down payment?
Ideally, the down payment is 20% of the purchase price. The minimum requirement for traditional loans is 3%. Federal Housing Administration (FHA) loans require a 3.5% down payment, while some special loan programs allow a 0% down payment. Consider how much savings you have for a down payment.
How long do I plan to live in this housing?
How long you plan to live in your home determines whether you choose a fixed or variable rate. Floating rates fluctuate with changes in market interest rates, while fixed rates remain the same for the duration of the loan regardless of market changes. If interest rates are low and you plan to live in your home for a while, it may be best to lock in a fixed rate.
Common mistakes first-time homebuyers make
To ensure a satisfactory home purchase, you must know your ability to pay. According to a Zillow survey, 30 percent of homeowners between the ages of 18 and 34 feel their mortgage repayments are too high. Compared with older people, almost half regretted having rushed to buy a house.
Please take the time to understand the costs of holding and maintaining the property, discuss all available options with the lender, and choose the one that best suits your needs. Don’t rush to make a decision.
Best home loan options for first-time homebuyers
The median household income for homebuyers today is $72,500. They have more home loan options, but be sure to learn about the types of loans they are eligible for. Depending on the down payment, eligibility, and loan guarantee method, there are several options:
- Traditional Loan: This is a traditional loan that is not guaranteed or insured by a government agency.
- Large Loan: This is a specialty loan where you can get a higher loan amount than a regular loan ( $510,400 in 2020 ).
- FHA Loan: This loan is insured by the Federal Housing Administration with a low down payment.
- Veterans Affairs Loan: This loan is insured by the U.S. Department of Veterans Affairs and provides assistance to veterans and active-duty military members and their families. The down payment is 0%.
- USDA Loan: This loan is insured by the USDA to assist homebuyers in eligible rural areas.
Discuss available options with your lender immediately to identify options that meet your needs, especially in the first-time homebuyer program. Lenders often work with government agencies to help first-time homebuyers. These plans may include educational resources, down payment help, or even discounts on interest rates.
For example, Cathay Bank’s Community Home Buyer Program is for first-time homebuyers and homebuyers with limited down payment funds. It allows homebuyers to make a low down payment and demonstrate good credit with non-traditional payment history.
Get in touch with our home loan specialists today to learn more about the loan programs Cathay Bank offers, or submit an application online.