The coronavirus pandemic is causing those who do not own a home become more interested in buying one, especially millennials, according to research from data intelligence company Morning Consult. Of the group of prospective first-time homebuyers motivated by the pandemic, 28 percent are millennials, 20 percent are Gen Zers, 19 percent of Gen Xers, and 9 percent are Baby Boomers.
Navigating how to buy your first home is a daunting task, especially in Colorado where home prices continue to rise. The hardest part is tackling how to finance such a large purchase – which mortgage options are right for you, how much cash will you need, and if there any assistance programs suited for your circumstances. The following tips gathered from nerdwallet.com will help you navigate the process, save money, and close the deal.
Start saving in advance
The costs of homebuying fall into three main categories: down payment, closing costs, and move-in expenses. The down payment depends on the mortgage type and lender. Closing costs are the fees and expenses you pay to finalize your mortgage. They range from two to five percent of the loan amount. Set aside some cash to use for possible immediate home repairs, upgrades, and furnishings.
Check and strengthen your credit
You can’t qualify for a mortgage without a good credit score, and your credit score affects the interest rate lenders offer. Strengthen your credit score by paying all your bills on time and keeping credit card balances as low as possible. Keep current credit cards open and don’t open new credit cards.
Investigate mortgage options
Each mortgage option offers pros and cons and comes with a cost. Here’s a start at what you need to know.
Conventional mortgages: A conventional mortgage is not guaranteed by a government agency, such as FHA or VA. It often meets the down payment and income requirements set by Fannie Mae and Freddie Mac and conforms to loan limits of the Federal Housing Finance Administration (FHFA). Conventional mortgages are typically for buyers with more money to put down. Borrowers who put at least 20 percent down for a conventional mortgage don’t have to pay mortgage insurance, which is typically required with lower down payments or government-backed loans.
FHA loans: These loans are insured by the Federal Housing Administration and allow down payments as low as 3.5 percent. However, lower down payments often mean higher interest rates and require mortgage insurance, which results in a higher monthly payment. Use a mortgage calculator to get the full picture of what this option means for you.
If you are a veteran, you can use a VA loan. These loans are guaranteed by the Department of Veterans Affairs and are for current and veteran military service members. They usually do not require a down payment.
Research first-time homebuyer assistance programs
Colorado offers first-time homebuyer programs through Colorado Housing and Finance Authority (CHFA). CHFA offers home purchase loans, grants, and second mortgage loans for down payment and closing cost assistance through a statewide network of approved lenders. Repayment requirements depend on what down payment assistance option you choose.
CHFA’s Down Payment Assistance Grant offers up to 3% of your first mortgage loan amount and does not require repayment, but can result in higher interest rates on your mortgage. CHFA’s Down Payment Assistance Second Mortgage Loan offers up to 4 percent of your first mortgage loan amount. Repayment is deferred but is still required.
Get a pre-approval letter
Once you’ve shopped around for a mortgage and determined how much you can borrow, you’ll want to get a pre-approval letter for your mortgage. Your mortgage approval is primarily based on documenting your income and assets, your equity stake or down payment, your credit, and the cash you’ll have left over after the purchase.
A mortgage preapproval is a lender’s offer to loan you a certain amount under specific terms. Especially in our competitive Colorado homebuying market, having a pre-approval letter shows home sellers and real estate agents that you’re a serious buyer, and it can give you an edge over home shoppers who haven’t taken this step yet.
These are some of the key areas to become familiar with to buy your first home. Realtors with a long-standing reputation in the community are good sources of information for where to get started.
To read the full article visit nerdwallet.com/article/mortgages/tips-for-first-time-home-buyers.
For research from Morning Consult, visit: morningconsult.com/2020/09/28/millennials-economy-homeownership.
By Tom Kalinski. Tom is the broker/owner of RE/MAX of Boulder, the local residential real estate company he established in 1977. He was inducted into Boulder County’s Business Hall
of Fame in 2016 and has a 40-year background in residential and commercial real estate. For questions, e-mail [email protected], call 303.441.5620 or visit boulderco.com.