The ongoing global health crisis and loss of jobs didn’t stop millions of people from purchasing new properties. The high demand for houses keeps putting the real estate industry as one of the highest-earning industries in the United States. In 2020 alone, the largest chunk of home buyers is Millennials, who find purchasing a property more cost-efficient than renting. Now that you have decided to own a house, the first thing you need to do is familiarize yourself with the process.
First-time Home Buyers’ Advantage
According to the US Department of Housing and Urban Development, first-time homebuyers are those that have not owned a primary residence during the last three years. You also fall under this classification if you are a single parent whose residence is considered a conjugal property. Being a first-time home buyer, get assistance from federally backed loans, tax breaks, and state programs if you can not produce the minimum down payment.
Down Payment
The down payment is the amount that you need to provide when applying for a loan. In the United States, the average down payment is 20% of the property’s total value, but some lenders would also allow you to put up a minimum of 3.5% and a maximum of 50% down payment. When it comes to this, the general rule is, the higher your down payment, the lower the interests are for the remainder of your loan.
As mentioned above, you have the option to pay the minimum 3.5% down payment if you can not provide the whole 20%. This is possible if you apply for a Federal Housing Administration or also known as an FHA loan. An FHA loan is designed to assist aspiring homeowners with low to average income and low credit scores.
To qualify for an FHA loan with a minimum of 3.5% down payment, your credit score should be at least 580. If your numbers are somewhere between 500 and 579, you can still take out an FHA loan as long as you provide a 10% down payment. Once you have been qualified, the FHA will require you to buy mortgage insurance and pay premium fees for security.
If you are a spouse of an active soldier or a veteran, you are qualified for a 0% down payment from the US Department of Veterans Affairs. Another entity that allows 0% down payment is the United States Department of Agriculture (USDA). To qualify for a USDA loan, the property you want to purchase should be located in an eligible suburban or rural area.
Mortgage
The purpose of taking out a mortgage is for you to avoid paying the price in full upfront. You can get this type of loan and pay it over a series of monthly payments. The average term is 30 years, but this will still change depending on the lending entity. When it comes to a residential mortgage, the house itself will serve as the collateral, and if you can not keep up with the regular payments, the bank or lender has the option to foreclose or repossess your house.
The application process when applying for a mortgage is pretty straight forwards. The lending company will ask for proof that you are capable of paying the loan. They will ask for important documents such as bank statements, proof of employment, and most recent tax returns. Since this is your first rodeo, you can consider enlisting the service of a professional mortgage broker to assist you in the whole mortgage process.
Home Insurance
Now that you have closed the deal on your new home, the next thing for you to do is to protect it. The main purpose of this type of policy is to protect your home against incidents like injury within the house, interior and exterior damage, and loss of belongings and assets.
Just like any other type of coverage, home insurance also has its limit. Generally speaking, the average limit of home insurance in the United States is set at USD 100,000, but you can always have a higher limit upon request. Another limitation is that this policy doesn’t always cover acts of war and acts of nature such as floods and earthquakes. If you live in an area prone to natural disasters, you might need to take out more comprehensive home insurance.
Now that you are armed with the basic knowledge about real estate, you can now be sure that you are prepared to handle the different stages you need to go through when buying a house. All that is left for you to do is to enjoy house hunting and look forward to finally finding your forever home.
