Owning your own home is a dream for many people. More young people are stepping onto the property ladder.
On average, first-time home buyers are just 33 years old.
But it’s difficult to buy a house outright at that age. So you’ll need a home loan to pay for it. And you’ll probably wonder how do home loans work!
Read on to learn 5 things you need to know about home loans.
1. So How Do Home Loans Work?
First-time buyers rarely have enough money lying around to buy a house outright. If they did, they wouldn’t need a loan.
Most loans require a down payment on the property. That’s a percentage of the purchase price.
But down payments are lower because lenders know first-time buyers have fewer savings.
2. Some Loans Come with Benefits
Home loans offer certain perks to first time home buyers.
These include the ability to make a small down payment. Sometimes, you won’t have to pay a down payment at all.
You’ll also enjoy limited fees which can ease the costs of buying a house.
Home loans can also help you access lower interest rates to ease your monthly repayments. Some loans offer the ability to defer payments if necessary.
Do your research to find out what’s available.
3. Improve Your Credit Score
If your FICO score is less than 580, you’ll need to pay 10 percent as a down payment. Have a FICO score above 580? You can pay just 3.5 percent as a down payment.
Improve your credit score before you apply. Pay bills on time to show you can handle credit.
Keep credit card expenditure to a minimum. Don’t max them out every month; keep some credit limit spare.
And don’t apply for new loans or credit cards while you’re improving your score. This just adds new sources of debt to your report.
4. There Are Different Types of Loan Available
Don’t feel like you’re restricted to a single type of loan. Explore different options based on your circumstances.
FHA loans are a great option if you have a short (or mediocre) credit history. Their income requirements are less strict and down payments are affordable.
Planning to buy a starter home and then move on? Try an adjustable rate mortgage. You’ll get a lower interest rate at a fixed level for the first few years of the mortgage.
Or a 30-year fixed loan means your monthly payments and interest rate can’t change. That gives greater stability and means you can better plan your finances.
If you’d like a challenge, buy a fixer-upper with a 203k loan and get enough funds to cover the cost of repairs too. Upgrade your new house to get your dream home.
5. Check If You Qualify First
As you might expect, a first-time buyers loan is usually aimed at first time buyers. That means people who haven’t own a home before at all. But you’re considered a first-time buyer if you haven’t owned a home in three years.
Other restrictions sometimes affect who qualifies for a home loan. Earning too high a salary, or having lots of savings, might disqualify you.
Don’t despair though. Sites like ManufacturedHomeLoans.com let you search multiple lenders at once to find the right loan for you.
Learn How Loans Work to Buy Your First Home
If you were wondering how do home loans work, now you know! Armed with this information, you can research which loans are right for you.
Work on improving your credit score before you apply. Then you’ll know how much you need to save for your dream home.
Why not check out our guide to choosing the best real estate agent?