Buying a home is a big step, so it’s important to get all the information you need before signing on the dotted line. You’ll need to know how much you can afford, how much down payment you’ll need, and whether you need closing cost help.
Thankfully, there are several mortgage programs designed for first time buyers that can make purchasing a home cheaper. These programs usually combine low-interest mortgages with down payment and closing cost assistance.
How Much Can You Afford?
When you first start thinking about buying your first home, it’s important to do a little research. This will help you determine how much house you can afford, and whether or not it’s the right move for you.
In general, mortgage lenders want to see that you can comfortably afford your monthly payments without a lot of strain on your finances. This is why it’s so important to look at your income, debts and savings.
If you have a good credit score, you’ll often qualify for a lower mortgage payment and pay less interest over time. It also helps to save a decent amount for a down payment.
A down payment of at least 20% of your home’s purchase price is recommended for a more affordable mortgage. The larger your down payment, the less you’ll have to borrow and the sooner you’ll be able to pay off your loan.
Down Payment
A down payment is a major cost to consider when buying a home. It represents your initial investment and the lender will likely offer you a lower mortgage rate as a reward for investing in the property.
There are many programs designed to help first time home buyers with their down payments, including cash grants and low-interest loans. The amount of money you can receive depends on the area you live in, your income, and the program you choose.
In New York State, SONYMA and HPD have a variety of down payment assistance programs available to first time homebuyers. Some are exclusive to first time buyers, while others can be used in conjunction with a conventional loan or FHA mortgage.
SONYMA offers two mainstream down payment assistance loans that act like zero interest-rate cash advances and are forgivable after ten years. Depending on your credit score and debt-to-income ratio, you may also qualify for additional funds to cover repairs or remodeling.
Closing Costs
Closing costs represent the fees and charges you’ll pay for services that are necessary to complete your home purchase. They’re not free, and they usually amount to about 2 percent to 5 percent of your purchase price.
The cost of closing will vary by state and will include items such as title insurance, transfer taxes, appraisal fee, credit report fees, and more. You’ll see these costs itemized on your loan estimate and closing disclosure, so it’s important to go over them carefully.
If you have trouble paying for closing costs, there are many programs that provide assistance. These include HUD and private bank programs, as well as regional options. In New York City, for example, there are several down payment and closing cost assistance programs available to first-time buyers. These programs may help you save thousands of dollars in closing costs, and they could also lower your monthly mortgage payments. Check with your lender to learn more about these programs and how they can work for you.
Mortgage Rates
Mortgage rates play a big part in the home buying process. They affect how much home you can afford, and how long your loan will last.
Generally, mortgage rates move up and down in response to economic factors such as inflation, the Fed’s monetary policy, and job creation. They also influence your ability to get approved for a loan.
A good mortgage lender can help you understand what influences your rate and how often it moves. They can also offer mortgage-rate locks, which allow you to lock in a low rate for a certain period of time so that you don’t have to worry about rising rates in the future.
Lenders will look at your credit, income and debt-to-income ratio to determine how much you can borrow. They may also consider compensating factors — strengths in your financial profile that can offset weaknesses.
