Buying a home is never really an “easy” process. Or at least not compared to buying a TV or Happy Meal. There’s tons of moving parts and a lot involved when it comes to purchasing- including the financing of the the deal. Often, obtaining financing is the most difficult part when it comes to buying your first home, but there are options.
Here I run down the most popular options for buying a home in Chester County (West Chester, Downingtown, Malvern, Kennett Square, or where ever). These loans aren’t exclusive to Chester County, and this is certainly not an exhaustive list. I’d advise you to give us a call so we can talk about what options might be available for your specific situation.
The first in the list of programs among first time home buyers are FHA loans, the most popular being the FHA 203(b) loan. Its the standard “FHA” loan that is for buying residential and owner occupied property. Most condos, townhomes, and single-family units will qualify, but will be subject to inspection for safety and possible hazards to the occupants of the property. The loans are back by the Federal Housing Administration, so they are subject to extra qualifications than a typical Use and Occupancy would require.
The benefits include:
- Low down payment (starting at 3.5% of purchase price
- Lower credit requirements
- Low closing costs
- Available in both 30 year and 15 year
Factors to consider:
- Longer closing time plus delays if property fails inspection
- Buyer has to pay for mortgage insurance which adds to monthly cost
- Buyer can only carry one FHA loan at a time (in most circumstances)
The other FHA loan first time home buyers may want to consider is an FHA 203(k). This is similar to the FHA 203(b) except it allows the home buyer to finance renovation costs as well. There are a lot more factors that come into play so its recommend you give me a call and talk to a mortgage provider to make sure its the right fit for you. Basically an appraiser goes out to the property and factors in your planned updates and renovations and the bank lends an amount based off of the improved appraisal. The updates have to be done within a certain amount of time and by a certified contractor. Its best utilized when a home is in good working order, but could use some updates that would directly improve the value of the home over the purchase price.
- Low down payment (and other benefits of FHA loans)
- Finance money to improve the home
Things to consider:
- Slightly higher interest rate (can be refinanced)
- Possible longer closing time, more people involved in process
Conventional loans are still available if its your first time buying a home or not. Since there has been a increase in regulations since the housing crash in 2008, many banks have put together low down payment conventional mortgage options that are easier to to get approved than an FHA loan, but with a down payment that’s still within the budget for first time home buyers. We’ve done deals in West Chester, Downingtown, Coatesville and surrounding areas for as little as 5% down.
- Low down payment
- Short term options (1-30 year loans, anywhere in between)
- No loan amount limit (beyond what you qualify for)
- Can cancel PMI payments with 20% equity
- Can carry more than one conventional mortgage
- Down payment still higher than FHA
- Higher credit requirements
- Higher interest rate
USDA Rural Development Loan
Like most government backed financing programs and initiatives, its typically easier to focus on the facts and terms than worry about the politics or “why”. The USDA (United States Department of Agriculture) lends out a certain amount of money each year in effort to economically develop rural areas. If the buyer qualifies for financing and does not exceed the income limit, and the property is in an eligible area- than a USDA RD loan could provide 100% financing (0% down). This could be a huge benefit for first time home buyers
- 100% Financing (0% down)
- No PMI Costs
- Fewer Closing costs
Factors to consider:
- Property must be in eligible area
- Buyer must meet income eligibility
For some first time home buyers, they have the option of a loan guaranteed by the U.S. Department of Veteran’s Affairs. These loans are great because they offer 100% financing ($0 down payment) and no PMI. The only caveat is the the first time home buyer has to be a vet in one of the the branches of the U.S. armed forces. If thats you, this could be a great option and allow you to afford more with less out of pocket financially.
- $0 down payment
- no Private Mortgage Insurance
- Only available to military Vets
Getting a home is a big step in any person’s life, but unfortunately the biggest obstacle for first time home buyers is the financing. There are a number of popular programs to help buyers get started in home ownership and knowing the difference and the pro’s and con’s of each can really help you make a decision and get into the market sooner. Of course every situation is different and we recommend you talk to a qualified mortgage lender for what will work in your specific situation. Give me or my office a call and we’ll be able to help you with that crucial step and help you on your way.
Schedule a call today!