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How to Buy Your First Home in 2022?

   John Doe      March 5th, 2022

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Buying your first home ever? You must be pretty thrilled about it – now you don’t have to pay rentals and renovate it as you like. But wait! Have you gone through the process of buying a home? If not, you are at the right spot. Here, you’ll get the ins and out of buying your first home in 2021. Let’s get started.

Guide to First-time Home Buying

Where to Start?

The first step of buying a home is always researching and getting answers. We often skip this first step or do not count it. But the reality is, “you cannot miss this step.”

When you first thought of buying a home, you need to ask:

Do I need to buy a house?

Let’s assume you have some savings enough to pay off the down payment. You also have a steady income enough to pay off your debts (mortgage). Is it enough to decide if you need to buy a house? No. It would be best to look for some significant expenses that could be coming your way, and you haven’t listed them.

Let me give you a real-life example. Recently, I met a home builder. His business was growing, and he had enough cash in hand to buy a new house. And so he did. But he missed one thing; he recently got into a lousy business deal. A considerable amount of his savings got stuck there (and it’s still in that same position). He told me the other day that he could have invested that sum into his business and saved it if he hadn’t bought that house.

Are you in that same position? Will you regret buying a house if some significant expense comes your way later? If that isn’t you, you are good to move on.

Do I have a steady income source?

While you can’t be 100% certain of that, you should at least have a sound belief that your income would stay steady in the longer run. Or, you would find ways to earn extra, if needed.

You could link this question with the former to get your answer. Or you may treat it independently.

When you’re buying a home, you’re usually required to have 20% of the house’s value to pay the down payment. But what about the mortgage installments? For that, you need a continuous income source. Make sure you comply with this part as well.

So now you have a reason to buy a home and are confident about getting a steady income. The following steps would be more complicated than this first step. I would try to keep those as simple as I could.

Mortgage

A mortgage is a type of loan to buy a home. 

According to the National Association of REALTORS®, nearly 90% of homebuyers go for a mortgage. It has low interest rates, extended repayment periods, and rates are generally kept fixed.

Talking about mortgages, we can’t ignore the down payment. While you may buy a house fully funded through your mortgage, most buyers prefer paying a down payment to avail of several benefits. Let’s take a deep look into this essential element of buying a home.

What is a down payment, and how much do I need?

For homebuyers, a down payment is an initial amount paid up-front to buy a house. The general perception is paying 20% of the home’s market price. But it’s not always true.

In fact, according to experts, the amount paid as a down payment is as low as 6%. So for a bungalow for sale with a market price of $1,000,000, the down payment at 6% is only $60,000 (some might consider paying $200,000 at a 20% rate). 

So the question now is, why do people say, “you need 20% down?”

When you pay less than 20% down, you need to opt for mortgage insurance; commonly known as private mortgage insurance (PMI). Mortgage insurance primarily protects the lender rather than the borrower.

If you don’t like the idea of getting a PMI, consider a situation when you pay 20% down. In case of a foreclosure, you lose 20%. 

Now reverse this situation. You pay less than 20% and get a PMI. the lender would pay the difference as a down payment. And in case of a foreclosure, you only lose that amount you have paid. 

In contrast, the PMI secures the lender. Even if there’s no foreclosure, you are still in a safe zone – you have paid less to become a homeowner. The only drawback is paying monthly insurance, which is usually several hundred.

Besides PMI, you also have other ways to generate funds for the down payment. A cash gift from a family member is one of them. But you will be required to give a paper trail to prove the money came from an acceptable source.

The Most Common Types of Loan Programs

There are dozens of loan types. But homebuyers prefer four of the widely used loans, which are:

• The conventional home loan
• The Federal Housing Administration (FHA) home loan
• The Department of Veterans Affairs (VA) home loan
• The U.S. Department of Agriculture (USDA) home loan

These mortgages are easy to access, have low interest rates with friendly loan terms. I highly recommend considering these loans when buying your first home this year.

What is the minimum credit score you need to buy a house?

To get a home mortgage, you need to show your credit score. Your credit score doesn’t have to be too good. For the FHA loan program, you could get a home loan with a credit score of 580. Other goes like that:

• Conventional loan – 620+
• FHA loan – 580+
• VA loan – 620+
• USDA loan – 640+ 

Mortgage lenders would also ask for your credit report to check if you’ve cleared loan payments on time. They’ll also check for credit issues like bankruptcy or foreclosure.

Buying a home

You now have a good idea about mortgages, down payments, and credit scores. It’s time to plan your budget, look for a house, and find a realtor.

How much can I afford?

To answer this question, you need the following:

• Set your monthly budget – prioritize needs over wants.
• The amount for your down payment.
• Your mortgage term period.
• Mortgage rates.

Use this tool to calculate your monthly mortgage payment: SmartAsset.

Choosing Your Home.

That’s the best part of all this guide – choosing your new home.

In today’s tech-savvy world, you don’t have to head out to hunt your home. You have online listings and realtors for that.

If you’re buying condos, you may start your search with phrases like condos for sale near me. Similarly, if you’re buying a single-family home, you may use phrases like home for sale near me.

Finding a trustworthy realtor.

Very few buyers would work without a realtor. Having a realtor besides you is almost as necessary as getting a mortgage loan.

Look for a qualified realtor with a proven sales record, happy clients, and the knack to think outside the box.

Just like finding homes via the internet, you could also search for residential realtors near you. Or you may want to contact a friend or family who just bought their new house.

I hope this guide has enlightened you with some helpful information. To know more, you could send us your questions via comments or our contact us form.