Accounting & Finance
Ways To Finance Your First Home
Buying your first home can be intimidating, but finding the right financial solution doesn’t have to be. Are you a first-time home buyer looking for the best way to finance your purchase? While purchasing your first home requires many tasks, securing a home loan should be your top priority.
There are numerous strategies and options available to make the process manageable. From conventional loans to government-backed programs and beyond, explore the different ways to finance your first home purchase today.
Financing Your First Home
This PropertyTalk guide for first home buyers on ways to finance your first home includes:
- Calculate your budget
- Understand your financing options
- The loan types for first-home buyers
- Research lenders
- Consider the length of your loan
- Ways to save for your downpayment
Calculate Your Budget
Before you dive into looking for a loan, it is important to understand the costs you can afford. Calculate your budget and make sure that it aligns to what you are comfortable paying monthly over a long period of time.
Talk to lenders about the maximum loan amount you qualify for, as this will give you a good idea of how much you need to put down initially and also how much your mortgage payments will be. Having a budget can help structure your search and determine what type of home financing product fits best with your financial goals.
Understand Your Financing Options
Before choosing the right financing solution for your first home purchase, you must understand all the options available to you. From conventional loans and grants to government-backed programs such as FHA or VA mortgages, it’s important to explore all available options and determine the best suited for your needs. Take time to research each option so you can make an informed decision and have a successful home-buying experience.
Loan Types for First Home Buyers
There are several ways to finance your first home.
Traditional mortgage
This is the most common way to finance a home and involves borrowing money from a lender to buy a property. You’ll need to make a down payment, which is typically 20% of the home’s purchase price, and pay back the loan over 15-30 years.
FHA loan
This is a mortgage that is insured by the Federal Housing Administration (FHA). It’s a popular option for first-time homebuyers because it requires a lower down payment (as low as 3.5% of the purchase price) and has more lenient credit requirements.
VA loan
If you are a veteran or active military member, you may be eligible for a VA loan, which is a mortgage backed by the Department of Veterans Affairs (VA). VA loans are attractive as they often don’t require a down payment or mortgage insurance, compared to traditional mortgages.
Down payment assistance programs: Some states and local governments offer down payment assistance programs to help first-time homebuyers afford a home. These programs may provide a grant or loan to cover part of the down payment.
Seller financing
In some cases, the seller of the home may be willing to finance part or all of the purchase price. This can be a good option if you have a good relationship with the seller and can negotiate favorable terms.
Rent-to-own
A rent-to-own arrangement allows you to rent a home with the option to buy it at a later date. You’ll typically need to make a down payment and pay an additional monthly amount toward the eventual purchase price.
Research lenders
Before you commit to any loan, it is important to understand your options. Research different types of lenders and their products – such as conventional loans offered by banks or government-backed programs like FHA or VA mortgages.
Compare rates, terms, and fees associated with each loan so you can decide on the best solution. Speak with real estate agents and bankers who can help you make the most financially sound decision that works for your budget.
Consider the length of your loan
Financing terms come in a variety of lengths, from short-term loans to 30-year mortgages. Before selecting the right loan for you, consider your goals and how long you plan to stay in your home.
With shorter-term loans, you can generally expect to pay a higher interest rate but will have more manageable monthly payments.
Longer loan terms usually carry lower interest rates. However, they can result in significant cumulative interest costs over the life of the loan.
Compare interest rates and fees
The first step in selecting the right loan is to compare available interest rates and fees.
Compare the Annual Percentage Rate (APR) of, at minimum, three different lenders to determine which one is offering the lowest APR. Also, consider any additional fees or closing costs associated with each loan option so you’re aware ahead of time what kind of expenses you could be faced with before signing on the dotted line.
Ways To Save For Your Downpayment
Do you have savings you can use for the downpayment? Here are some ways you can spend less and save more for your first home deposit (downpayment).
Stay with Mum and Dad
You don’t need to ask your Mum and Dad for money, but you could ask if you could stay with them if you are currently renting to save some cash.
You could offer them a nominal amount for the additional utility costs. Still, in the long run – it’s an excellent way for you to make some savings and get some money for your deposit on the house. It doesn’t need to be long-term; even a few months can do wonders. Most parents love having their children back to fuss over, no matter their age.
Get a second income stream
You can do many jobs from home these days to earn a passive income as a side hustle. There are also creative ways in which you can do this. For example, many people take up freelance photography, writing, etc. You could also open up your own business if you wanted to as something on the side.
Many people create bespoke hampers, bake cupcakes, etc., to make more cash on top of their primary job role. These things can be fun, too – so they might not seem too much like a task.
Savings on utilities
If you are renting, then utilities can be a high cost. Often people will stick with what their landlord initially has, but it’s a good idea to look into this yourself to see if there is any way to reduce this.
There are lots of utility comparison sites out there where you can view lots of different offers at the same time, giving you an idea of what is the best deal for you. Some of the companies can even help you get out of contracts. You can put any money you save in a separate bank account for your deposit and ensure you don’t touch it.
Summing Up
You can get your first home when you know what you can afford and which lender will give you the best loan for your requirements. You will need to provide a downpayment, and you can start saving for it immediately using our tips on how to generate more income and reduce your everyday expenses.