Plan Ahead to Buy Your First Home
The choices you make when selecting and financing your first home can have implications far down the road. Consider the first-time buyer who has a limited budget, needs to save money up front and make the lowest down payment possible.
What choices are open to these borrowers compared to those who want to make a large down payment, don’t want to finance closing costs, and who have financial goals where saving money over the duration of the mortgage loan term is more important than saving money up front?
The borrower who needs to save money up front may choose to finance allowed closing costs, such as the Up Front Mortgage Insurance Premium, and make the minimum down payment allowed. The trade-off is that these borrowers will pay more over the lifetime of the mortgage thanks to the add-ons to the base loan amount.
But a borrower who knows ahead of time they won’t stay in the home for the entire duration of the mortgage has the advantage in knowing that one day the sale of the home is a factor in their financial future.
It makes more sense for borrowers who can and do make a larger down payment, don’t finance closing costs, etc. when there is a plan NOT to move out of the home in the mid-to-long term. These borrowers, when there is a desire to save money over the long haul, are justified in paying discount points, larger down payments, etc.
And then there are the borrowers who aren’t sure which way they will go in the future, and try to find a happy medium between the bigger down payment and lower out-of-pocket expenses.
These borrowers should know about FHA-to-FHA refinance options like Streamline Refinancing which allows the borrower to refinance into a mortgage loan that provides a tangible benefit to the borrower in the form of a lower payment, getting out of an adjustable rate mortgage into a fixed rate loan, etc.
When you talk to a loan officer for the first time, be sure to explain your long-term needs and goals to find the right home loan approach for you. A bigger down payment may make sense, or getting the least amount of money out of pocket at closing time may be your goal.
Whichever you choose, work with your loan officer and explain your goals for the loan and the home long-term; you may get some excellent advice on which options to choose going forward.
Disclosures Give Transparency to Borrowers
Understanding the Purpose of Your Mortgage Down Payment
Putting Money Into Your Escrow Account
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