FIRST TIME HOME BUYERS GUIDE

Homeownership is a terrific way to create stability in your life and to start building wealth for your future.
You can’t know everything there is to know about buying a home — especially when you’re a first time home buyer. However, you can do a little research, get yourself a smart real estate agent and put yourself in position to succeed.
The more you know, the better off and less stressed you’ll be. You may even get a better deal on your home loan.

First-time Homebuyer Programs
First-time homebuyer programs provide “low” or “no-down-payment” mortgages, offer down-payment assistance, and help with closing costs to buyers with low-to-moderate incomes.
“Every U.S. state has a state-chartered housing finance agency, and nearly every agency offers down payment assistance to first-time homebuyers,” says Anna DeSimone, the author of Housing Finance 2020. “Homebuyers can generally obtain 3.5% to 4% of the purchase price, which meets minimum down payment requirements for a conventional or FHA loan. Some agencies offer much higher amounts, such as 6% or 10%, to cover closing costs or home repairs.”

Choosing the Right First-time Homebuyer Program
When choosing a first-time home buyer loan or grant, you’ll need to determine which programs you’re eligible for and how much assistance you need.
Every program has its own requirements. You may need to have a certain credit score or income level to qualify. Some programs are reserved for veterans, people with disabilities, or people in certain professions, so you’ll need to do some research to figure out which programs you’re eligible for.
Before you apply for a loan or grant, you should also figure out how much assistance you need. If you need help with your down payment and closing costs, you may need to apply to multiple programs and grants or find one program that covers both costs.
Home buyers today can choose among dozens of loan types, but more than 90 percent of buyers will end up using one of four government-backed programs.
Programs such as the: FHA home loan, the VA home loan, USDA home loan and the Conforming home loan.

Here are 6 first-time homebuyer programs
• FHA Home Loan Program: Best for homebuyers with – low credit scores
• The Conforming Loan: Best for homebuyers with + good credit scores and 10% Down
• USDA Home Loan Program: Best for homebuyers with Zero Down
• Conventional 97 Loan Program: Best for homebuyers with 3% Down or more
• Good Neighbor Next Door Program: Best for public servants(teachers, firefighters,L.E.)
• HomePath Ready Buyer Program: Best for buyers looking at foreclosed homes

The FHA loan- Low credit
FHA loans are popular with borrowers who have smaller down payments and/or credit issues, which require extra underwriting flexibility. The biggest appeal of the FHA loan is that buyers with below-average credit can get mortgage-approved.
If you have a low credit score, your application for a conventional mortgage may be rejected. That’s where the FHA Home Loan Program comes in. FHA loans are insured by the Federal Housing Administration and have less stringent requirements than conventional mortgages, enabling you to buy your first home — even with bad credit.
FHA loans allow buyers with credit scores as low as 580 (for 96.5 percent loans) and 500 (for 90 percent loans). However, low credit scores must not be the result of recent bad credit history.
FHA mortgage rates are often lower than conforming mortgage rates, but because all FHA loans require mortgage insurance premiums (MIP), the overall cost of an FHA loan is sometimes higher.
If you have a credit score of 580 or higher, you can qualify for an FHA loan with a down payment of just 3.5%. The money for the down payment doesn’t have to come from you; it can come from a grant or a generous family member. You can also roll your closing costs into the loan, so you could potentially buy a home with no money upfront.
Even if you have a credit score below 580, you may still qualify for this program. Buyers with credit scores between 500 and 579 can get FHA loans as long as they can put 10% down.

The Conforming Loan – Good credit
Conforming mortgage loans are what most home buyers think of when they think of “home loans”. The term “conforming” means that these loans “conform” to guidelines established by two quasi-government entities – Fannie Mae and Freddie Mac.
Conforming mortgages are often the best choice for home buyers with good credit scores and a down payment of at least 10 percent.
However, two conforming mortgage options exist for buyers making a down payment of just three percent. They are the HomeReady™ home loan and the Conventional 97 option.
HomeReady™ mortgages offer discounted mortgage rates to buyers in lower-income neighborhoods, minority-heavy neighborhoods, and in areas which have been declared a federal disaster zone.
Conventional 97 mortgages offer no such discount but can be the most economical way to purchase a home with little money down — especially for buyers with extra-good credit.

Conventional 97 Loan Program: Best for home buyers with minimal savings
If you have some savings, but not quite enough for a down payment, check out the Conventional 97 Loan Program from Fannie Mae. This first-time home buyer loan allows you to put just 3% down instead of the usual 20%.
To qualify, you’ll need to have a credit score of at least 620 and a debt-to-income ratio of 41% or lower.

The USDA loan
Available in low-density suburbs and rural areas, the USDA loan is another no-money-down mortgage you can use to finance a home.
The USDA loan is meant for home buyers with low-to-moderate income through its Guaranty program. The USDA allows credit scores as low as 640. It offers below-market mortgage rates to borrowers with very low incomes through its Direct program.
Surprisingly, the vast majority of the US land mass is considered “rural” by the USDA.
So if you don’t have money saved up for a down payment and you don’t have any friends or family who can help you out, you should look into the USDA Home Loan Program. The USDA offers 100% financing home loans to low-to-middle-income buyers throughout the country, so you won’t have to put a dime down.
To qualify, you’ll need to purchase a home in an eligible suburban or rural area and have a credit score of at least 640. You’ll also need to meet the income eligibility requirements, which vary from state to state. You can check to see if you are eligible by using this tool on the USDA website.
If you qualify, you’ll be able to get a zero-down, low-interest mortgage and move into your dream home ASAP. Hooray!

Good Neighbor Next Door Program: Best for public servants
Calling all public servants — you can get your first home half-off if you qualify for HUD’s Good Neighbor Next Door Program.
Teachers, firefighters, law enforcement officers and emergency medical technicians are all eligible for this program as long as they purchase HUD-owned homes in revitalization areas.
A revitalization area is a part of the country that’s up-and-coming. Some of the homes in these communities need a little extra TLC, but it’s worth putting in some sweat equity to save 50% on the purchase price.

CalHFA Loan
Most people borrow the money they need to buy a home. This type of borrowing is called a first mortgage loan. There are also mortgage loans that can help out with down payment or closing costs, called junior loans. CalHFA has first and junior loan options for low to moderate income families, including low to zero interest rate down payment assistance loans. CalHFA does not accept loan applications directly. A CalHFA approved Lender will qualify you for a home loan, so you will need to apply with an approved lender. We can help you find one. You may also visit the CalHFA website at: https://www.calhfa.ca.gov/index.htm

• MyHome Assistance Program for assistance with down payment and closing costs.
• CalHFA Zero Interest Program for closing cost help on CalPLUS Conventional and CalPLUS FHA loans.
• School Teacher and Employee Assistance Program for educators, administrators and school and district staff.
• CalEEM + Grant Program for an FHA-insured energy efficient mortgage.

HomePath Ready Buyer Program: Best for buyers looking at foreclosed homes
HomePath Ready Buyer Program from Fannie Mae is great for first-time homebuyers who are interested in purchasing foreclosed homes. Through this program, you can get closing cost assistance that covers up to 3% of your total closing costs. All you have to do to qualify is take a short online course about the home-buying process and purchase a foreclosed property owned by Fannie Mae.

The VA loan
The VA loan is a great program, with benefits offered by no other loan. But you need to be associated with the military to be eligible.
Available to veterans and active members of the U.S. military, VA loans offer 100 percent financing, simplified loan approval standards, and access to the lowest mortgage rates available.
For the last two years, VA mortgage rates have consistently beat rates for all other common loan types. VA mortgage rates can be as much as 40 basis points (0.40 percent) lower than rates for a comparable conventional loan.

GSFA Platinum Program (Grant) Free Money*
Califonia’s Golden State Finance Authority (GSFA) created the Platinum Program, which provides low-to-moderate income California homebuyers with down payment and/or closing cost assistance to help them achieve their goals of purchasing a home. This grant is available to you through national funds (NHF).

GSFA’s Platinum Program provides applicants with down payment and/or closing cost assistance in the form of a non-repayable grant up to 5 percent of the total loan amount. This is a gift in the true sense, which means it is not a second mortgage, does not create a lien against the property, and there are no terms for repayment.

The purpose of this program is to make funds available to eligible applicants who are interested in purchasing a home but need financial help to pay the upfront costs, which include the down payment, as well as the closing costs and prepaid items required to obtain homeownership. These expenses can add up to a substantial amount, and the inability to pay it might keep people stuck in a renters trap.

Eligibility Requirements
The GSFA Platinum Program has certain requirements that all applicants must meet to be considered eligible for assistance. Any home being purchased under the program must serve as the applicant’s primary residence; the program is designed to help individuals purchase homes, not investment properties. Additionally, all applicants must fall under the Program’s Income Limits, have a credit score of at least 640, and a maximum debt-to-income ratio of 50

Explaining the mortgage
According to the National Association of REALTORS®, only about 10 percent of buyers purchased homes with all cash. Everyone else had to borrow at least some of their purchase price with a mortgage. That percentage drops even lower when you only look at first time home buyers.
You can finance 100 percent of the purchase if you qualify. But most people put some of their own money toward the purchase — a figure known as a “down payment.”  You finance the amount that’s left over.
For example, if you bring $25,000 of your own money to a $250,000 home purchase, you have made a 10 percent down payment and your remaining 90 percent mortgage balance is $225,000.

What happens after I choose my loan program?
Once you’ve uncovered the mortgage loan type which works best for you, you’ll want to begin thinking about your monthly budget and how much home you can afford.
It’s up to you to figure this out. A bank can’t do it for you. So, first, determine your monthly budget and write that number down.
For this example, let’s say it’s $1,500 per month.
We’ll now work backward to determine your maximum home purchase price.

Contact at least two mortgage lenders
You can get a mortgage loan from just about anywhere.
If you have a favorite local bank or credit union, you can apply for a mortgage loan there. You can also find lenders online that may offer special products or lower pricing. It pays to compare.
Mortgages are everywhere. You can even apply for a mortgage from members of your family if they’re so inclined to make you a loan.
As a home buyer with choices, then, what’s important to remember is that every mortgage lender will offer slightly different terms and require you to meet slightly different standards.
Just because you achieve mortgage approval with Bank 1, for example, doesn’t mean Bank 2 will want your business. And mortgage approvals from different lenders don’t necessarily come with the same interest rate and fees, either.
This is one of the main reasons why you should plan to speak with at least two lenders when buying a home. In fact, one study from Stanford University found that obtaining three or four quotes dramatically lowered mortgage costs for homebuyers.
It not only helps to have a Plan B, but it’s nice to know that you’re getting the lowest mortgage rate possible.

Find your PITI
Your mortgage payment is made up of four parts, collectively known as PITI — Principal + Interest, Taxes, and Insurance.
Principal + Interest is your basic mortgage payment. It’s based on your loan amount, interest rate, and your loan term (the number of years you have to repay it).
You’ll also need to budget for real estate taxes. As a homeowner, you’re responsible for paying an annual real estate tax to the local taxing authority. Annual taxes typically range from 1-2 percent of your home’s value annually.
Then, there’s homeowners insurance. Mortgage lenders require that you carry insurance for your home, which typically costs 0.25-0.50 percent of your home’s value annually.
So, assuming a home purchase price of $250,000 and a ten percent down payment, plan on setting aside $400 for taxes and insurance each month.
This leaves $1,100 to spend on principal + interest.

Find your mortgage rate and price range
Determining whether a home is “in budget” depends on your principal + interest payment. Your principal + interest payment depends on current mortgage rates.
Be aware that mortgage rates move up and down all day, every day. Over the course of weeks and months, rates can change by 50 basis points (0.50 percent) or more.
When you’re shopping for a home, especially over an extended time period, it’s important to observe mortgage rates and how they are trending.
Consider the above example, when you have budgeted $1,100 to spend on principal + interest each month.
♣ With mortgage rates at 3.75 percent, the payment is $1,043. The home is in-budget.
♣ With mortgage rates at 4.25 percent, the payment is $1,107. The home is out-of-budget.
This example shows why you should never shop for homes by “price range.” The same home is affordable when rates are low, and unaffordable when rates increase.
Adjust your target price range based on current mortgage rates. It’s the only true way to keep on budget.

Shop for homes with confidence
There are many stressful stages of buying a home, but getting your mortgage shouldn’t be one of them. A little bit of knowledge can go a long way toward keeping you calm.
Access to good tools can help, too. Use a mortgage calculator to see how today’s mortgage rates might fit your household budget, and what your mortgage PITI could be.