When people find out I'm a realtor, they often tell me they should stop paying rent and buy a house. Most of them are correct. Buying a home is a great long term wealth builder but many people don't know how to start the process. I'll start with the easiest (but unlikely) and build up to more common strategies and financing options of purchasing your first home.
Cash. Cash is king in the real estate market. Of course, not dollar bills cash; you can't come to the closing table with a suitcase of cash, but with liquid, verifiable funds from a bank. Cash is quick and doesn't have the regulations that a financial institution may have. Cash buyers tend to be investors, those with big bank accounts or buyers with equity from a previous property. Buyers that purchase with cash often have the most negotiation power because they can close quickly, don't require an inspection or a bank appraisal.
Conventional Loan. If your mortgage is a conventional loan, you probably put 20% down payment on your purchase. A 20% down, conventional loan will get you the best interest rates and you don't have to pay for private mortgage insurance (PMI). You also get the option to pay your own property taxes and homeowners insurance bills rather then the mortgage company escrowing them for you.
FHA Loan. These loans are intended for first time home buyers because they only require 3.5% down. They are backed by the Federal Housing Administration, an agency of the U.S. Department of Housing and Urban Development (HUD). Typically, a person with a 580 or great credit score will qualify for an FHA loan. Borrowers can use money from their own savings, a gift from family or friends, or a local down payment assistance program. An FHA loan will require borrower to pay PMI between 0.5 to 1% of the loan amount per month. On a $100,000 loan, this would be $83.33 per month. This protects lenders from losing money if you default on your loan. If you are only able to save 3.5% for your home purchase, it may or may not be beneficial to buy now.
VA Loan. The U.S Department of Veteran Affairs guarantees loans for American Veterans, those currently serving, reservists and some surviving spouses if they do not remarry. The basic goal of the VA Loan program is to supply Veterans with a NO DOWNPAYMENT option to purchase a primary residence. This can be a home, condo or new construction. The big benefit of a VA loan is there is no PMI. The Department of Veteran Affairs backs these loans and does not require the borrower to pay Private Mortgage Insurance. VA loans typically take 45 days to close as compared to 30 days with FHA or conventional loans.
USDA Loans. The United States Department of Agriculture issues loans to rural and suburban areas to "Improve the economy and quality of life in rural America". USDA Loans offer borrowers a zero down payment option to buy a home. Borrowers must meet certain income qualifications and the property must be located in an approved area. In the greater Austin metro, Central Texas area, parts of Manor, Kyle, Buda and Hutto are eligible. Click here to find eligible communities: https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?pageAction=sfpd
Instead of just wondering if you can buy a home, talk to me or a local lender. If you're not ready now, the lender can help you prepare for a future purchase.