Buying a home is one of the biggest commitments in life. There are a lot of moving parts that come with the process, and a first time home buyer will come across a lot of questions. As a Real Estate agent on the island of Oahu, Hawaii, which is one of the most expensive markets today, I suggest not getting overwhelmed, take one step at a time, and get organized. Follow these down payment tips:
1. Start Saving Early
Putting down less than 20% may mean higher costs and paying for mortgage insurance, but nowadays some lenders permit much less, some first time home buyers program allow as little as 3% down. But remember, even a small down payment can still be hefty. 6% down payment on a $300,000 home is $18,000.
Some rules + tips during this journey:
- Don’t change jobs or become self-employed.
- Don’t make big purchases like cars or furniture.
- Keep an eye on your credit card spending, and don’t let your accounts fall behind.
- Set aside tax refunds and work bonuses, set up an automatic savings account.
- Get an app to track your progress. Take a look at these apps: Acorns, Chime, Digit.
2. Explore Your Options
There are quite a few mortgage options out there. Each one has its own advantages and downfalls. If the traditional 20% down payment isn’t an option for you, check out these loans:
Conventional Mortgages: First-time home buyers can get a conventional home loan with as little as 3% down if the mortgage meets requirements set by Fannie Mae and Freddie Mac. Most lenders require a minimum credit score of 620 to qualify.
FHA Loans: Insured by the Federal Housing Administration that allows down payments as low as 3.5% for first time home buyers with credit scores of 580 or higher. Two things to note about FHA loans are lower credit score and lower down payment.
VA Loans: Guaranteed by the U.S. Department of Veterans Affairs, these mortgages are available to military members, veterans, and surviving spouses. If you qualify, you’ll see benefits such as no minimum credit score and no down payment or mortgage insurance.
The bottom line is higher the down payment, lower the monthly expenses. A 30-year fixed mortgage will yield the lowest mortgage payment, a 20-year or 15-year fixed loan will yield a lower interest rate. Another option is an adjustable-rate mortgage; it is riskier but offers a low interest rate for the first few years of your mortgage. Talk to your lender to determine which mortgage fits better for you.
3. Do Your Research
Many states offer assistance programs for first-time home buyers like down payment assistance, closing cost assistance, tax credits, and discounted interest rates. In the State of Hawaii, HHFDC offers eligible first time home buyers the Hula Mae Mortgage Loan Program.