Baby Steps; encouraging words for buying your first home
Home ownership is the American Dream come true. No where on earth is becoming a
home owner easier than it is in the U.S! Owning a home is part of our heritage and the desire to put down roots is strong.
The home ownership path is not always as easy as one would like. First timers find with house prices so high, they often have to settle for less than they would like. Of course settling for what you can afford vs. what you want is a rule of life for most people. Weeding out the "wants" from the "needs" is a process I help buyers with all the time. It doesn’t matter if they are in the entry level market or purchasing a million dollar home. There is always a gap between want/need.
First Time Buyers Challenges
After the decision is make to purchase a home, the first time buyer will face a few challenges which are generally overcome with a simple strategy.
- Credit; good, bad or lack there of! If a 1st timer has been living within their means, chances are they have good credit or perhaps no credit at all. Establishing a good credit record is the first step in obtaining a loan. If there is no credit a mortgage broker will advise obtaining a credit card and charging a few items on it each month. Paying off the credit card in a timely manner will establish a good track record for the first time buyer.
- Bad credit; It seems first time buyers are tempted early on in college to take out credit cards. Next thing they know they are in over their heads, unable to make timely payments. Late payments, written off charge card accounts, etc. can be taken care of. The remedy will vary from case to case, but a good mortgage banker can advise the best strategy. I’ve been told even the worse credit (including bankruptcy) can be turned around with proper attention.
- Down-payment; Buying a home has almost always required some sort of down-payment from the buyer. In recent years mortgage companies became very liberal in lending practices and made loans with no down-payment necessary. That practice was found be to faulty, so now we are back to requiring the buyer to have some "skin in the game!" The amount of skin required depends on the type of financing obtained.
- Low-income; Mortgage loans are typically made on a ratio of take-home earnings to house payment. An affordable house payment is generally defined as 30% of income. What happens to many potential buyers is their income is not sufficient to warrant purchasing a home in the area they live. In some instances there is a way around this by using First Time Home Buyer Programs.
First Time Home Buyers Programs
In Colorado, every county has some sort of program to assist buyers in purchasing a home. The Colorado Housing Finance Authority (aka CHFA) is a state run organization that makes loans to low income buyers. Typically these loans are made at a better interest rate then offered on the general market.
CHFA programs as do most First Time Home Buyer Programs have very specific requirements the borrower must meet.
- loans are made on an income based scale. Borrower’s income cannot exceed specific amounts.
- Borrower(s) must attend a Home Buying Class put on by the organization that is lending the money. If there are two borrowers on the mortgage, both must attend prior to closing on a home.
- Credit score is important
- Must be "under-contract" with a home before borrower can apply for loan.
I am purposely being a little vague here, because each program has rules that differ from the other. Income limits can be as low as $40,150 for one person to as high as $71,400 for a household of 1 or 2.
For buyers who are lacking a down-payment, there is also Down-Payment Assistance in the form of Denver Bond money. This program GRANTS up to 4% for a down-payment that NEVER has to be paid back. Grants can also be used to bring the cost of the mortgage down by 4% if the buyer is able to have the seller pay for closing costs.
Ok, are you confused yet? These facts actually make my head swirl!
"Putting together a loan package that uses CHFA, Denver Bond Money and other options has become an art form!" said Cindy Howeth CHFA’s top mortgage loan broker at 1st Priority Home Loans.
The important thing to know is there are people who specialize in funding first time home buyers. Whether the buyer qualifies for special financing or not, the process of buying a home for a first timer takes more care and concern. The buying process itself is not much different, but the education process that should accompany is critical in making the experience one of pleasure or one of pain.
In a Nutshell First Time Buyers Need To:
- Consult a Professional who can inform them of their options…all the options.
- Make the time to attend a Home Buyers Class, before purchasing
- Develop a strategy to become a homeowner
- Maintain or become fiscally responsible
- Go find a home you can afford
The journey may look like a maze of confusion, but with a little help first time home buyers can successfully navigate and enjoy the trip.
Other Articles of interest
First time buyers are finding opportunity with CHFA
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What a concise and clear explanation. Here in Cleveland we are using the Preferred Neighborhood FHA program (kind of an odd name but a good program). It’s FHA and replaced Neighborhood Gold. There were rumors the program was going to disappear but it’s at least gotten an extension.
I know you agree with me on this: giving keys to First Timers is the most rewarding part of our jobs!
Carole Cohen’s last blog post..Grassroots Activism is Not Dead: The East Side Organizing Project Fights On
I do agree with you Carole. I love to experience the joy of watching first timers fall in love with their home.
Yes, I do believe you are right…the Neighborhood Gold type programs are probably going to go away.
I hear FHA may come up with a similar program, we’ll just have to wait and see.