Buying your first home can be exciting and overwhelming, but it can also be stressful.
Millennials, in particular, face unique challenges that previous generations did not. The concept of a starter home — meant as a first purchase that is less desirable than a forever home — is no longer commonplace, and New York-based Millennials, in particular, are more likely to buy their first home later in life and stay in that property for longer.
The goal is for first-time homebuyers to feel confident about their acquisition, yet 63% of Millennial homebuyers have regrets about their first purchase. The most common reason for this is that many buyers do not understand the cost of buying and maintaining a home. Most homebuyers work with a mortgage lender to secure a loan, so the key is to be prepared, avoid the common mistakes of first-time homebuyers, and know your best mortgage options.
The largest cost tied to a home is the mortgage. As a first-time buyer, there are several frequently asked mortgage questions to consider:
To qualify for a mortgage loan, you will need to demonstrate your ability to repay the loan by showing the bank or mortgage advisor your financial information. Make sure you have applicable documents that are required by the lender (e.g., W-2s, recent pay stubs, the previous two years of tax returns, bank statements, investment statements, etc.) readily available.
A high credit score and good credit history will likely qualify you for the mortgage loan and possibly help you obtain a better interest rate. An analysis of 1 million Credit Karma members determined that the average credit score for first-time homebuyers is between 662 and 730 — depending on the state they live in. (The maximum score is 850.) If you do not have good credit scores, you might need to leverage your other assets, such as bank deposits, publicly traded stocks, or retirement accounts, to secure a loan.
Use an online mortgage loan calculator to determine what you can afford to spend on your home each month. Consider your income and debts, including property taxes and hazard insurance.
The ideal down payment is 20% of the purchase price. The minimum requirement for a conventional loan is 3%. Federal Housing Administration (FHA) loans require 3.5% down, while some special loan programs allow for 0% down. Consider how much you have in savings available for a down payment.
How long you plan to stay in your home helps determine if a fixed or variable interest rate is best for you. A variable rate fluctuates as the market interest rates change, whereas a fixed rate stays the same for the length of the loan, no matter what happens to the market. If interest rates are low and you plan to stay in your home for a while, it may be a good idea to lock in a fixed rate.
In order to remain satisfied with your home purchase, it is important to know your affordability level. A Zillow survey showed that 30% of homeowners between the ages of 18 and 34 felt their mortgage payments were too high. Nearly just as many said they regretted rushing into purchasing a home as compared to their older counterparts.
Take time to understand the costs to own and maintain a property. Speak with a lender about all the available options, then choose the one that best fits your needs. There is no rush.
Buyers today earn a median household income of $72,500. They have more mortgage options available to them, but it is important to know the type of loans they are qualified for. The following options vary depending on the down payment, qualifications, and how the loan is insured:
Speak with a lender today about the available options to see which one best suits your needs, especially first-time homebuyer programs. Often, lenders will work with state agencies to aid first-time homebuyers. These programs might include educational resources, down-payment help, or even rate discounts.
For example, Cathay Bank’s Community Home Buyer’s Program is for first-time homebuyers and homebuyers who have limited funds for down payments. It allows buyers to put up a lower down payment and use a nontraditional payment history to demonstrate good credit.
This article does not constitute legal, accounting, or other professional advice. Although the information contained herein is intended to be accurate, Cathay Bank does not assume liability for loss or damage due to reliance on such information.