How much money do I need to purchase a home if I am a first time home buyer?
Are you a first time home buyer? Are you currently renting and living paycheck to paycheck and feel that you do not qualify for a mortgage because you do not have a lot of money saved? If you have a will to be a homeowner, there is always a way. There are creative options where most renters can become homeowners.
First time home buyer mortgage loans
The bare minimum you need to qualify for a FHA loan is 3.5%. There are many cases where you will not even need the full 3.5% down payment if you structure the purchase real estate contract correctly. However, you do need to show that you have the 3.5% down payment money in your bank and that the funds be seasoned for at least two months. In the event if you do not have the full 3.5% down payment, FHA allows you to get the full 3.5% down payment as a gift from a family member.
Closing costs for first time home buyer
Besides the 3.5% down payment, a first time home buyer will need to come up with closing costs to close on the home purchase. However, the home buyer can get a seller’s concession towards the buyer’s closing costs so the buyer does not have to pay a single penny in closing costs. Seller’s concessions towards closing costs can also be applied to the buyer’s prepaid closing costs ( property tax and insurance escrows ). A buyer can get the full amount of the closing costs from the seller’s concession including escrows.
Lender’s Credit Towards Closing Costs To First Time Home Buyer
In the event the seller is not willing to give the buyer a seller’s concession, the buyer can get a lender’s credit towards closing costs in lieu of accepting a slightly higher mortgage rate.
The maximum amount of seller’s concessions allowed on FHA loans is 6% for FHA loans and 3% for conventional loans. Seller’s concessions cannot be used towards down payments. Any unused portion of seller’s concession must be returned to the seller so it is best to structure the seller’s concession the right way when preparing the real estate purchase contract.
Tax prorations can be used towards down payment
If you are a first time home buyer, you will also receive tax prorations on the home you are buying. All property taxes are paid in arrears so the seller will owe you, the buyer, the previous year tax payment at closing. Will all closing costs covered via seller’s concession or lender’s credit including your prepaid closing costs ( escrows ), your tax prorations credit can be used to offset your 3.5% down payment. Many times the tax prorations are large enough to cover your full 3.5% down payment. If you are lucky enough, you may be able to own your home with very little to no down payment. Again, your 3.5% down payment needs to be shown and proven that you have it even though you might not use all of it. An experienced seasoned realtor can help you structure the real estate purchase the right way for you to benefit with putting down as little money as possible on your home purchase.
2015 Update For First Time Home Buyer
A first time home buyer can now qualify for a conventional loan with a 3% down payment. The 3% down payment conventional loan program is for first time home buyer only or home buyers who did not own a home for the past three years. Standard conventional loan programs require 5% down payment on a conventional home purchase mortgage loan.